Reverse mortgage entails trade-offs

"Within a year, a lot of widowed people find that they move because the house doesn't work for them. It's too lonely. It's too big. It's too uncomfortable. They don't want to mow the lawn," Stucki says.

Don't borrow to buy insurance or an annuity. "Taking out a loan to buy insurance or a financial product is not a good idea. The loan ends up being expensive, and you're paying interest on that," Montezemolo says.

Match the mortgage to the need. Seniors who want to tap a modest amount of equity to make major repairs, pay short-term medical costs or move to a more manageable home might prefer the new Saver reverse mortgage to the traditional, now-called "standard," product. The Saver loan has a substantially lower upfront cost, though the amount that can be borrowed is more limited, says Peter Bell, president of the National Reverse Mortgage Lenders Association, a group that represents reverse mortgage lenders and investors based in Washington, D.C.

Reverse mortgages aren't only a last resort. Until recently, reverse mortgages were used mainly by elderly widows. Today, however, these loans have made inroads among borrowers in their 60s and married couples as well. Borrowers can use these loans not only for living expenses and home repairs, but also as a financial or estate planning strategy. Two examples Bell cites are as an alternative to selling other assets or as a way to defer collecting Social Security benefits.

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