Diane and Peter Carrara moved into their dream house in 1958. It was an unfinished shell — no doors, bathtub, heat, or even finished...

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Diane and Peter Carrara moved into their dream house in 1958. It was an unfinished shell — no doors, bathtub, heat, or even finished flooring — but it was near a lake and nestled in the woods, just like they wanted.

They talked the owner into accepting $50 a month the first year, while Peter finished enough of the house to qualify for a mortgage. They pinned blankets across the kitchen doorway to keep in the stove’s heat, and slept on the floor “with all the clothes we owned on our back” and their 2-year old son between them, Diane said.

Over the next half-century, they finished the basement and the walls, added a deck, and landscaped the property in Chepachet, R.I., with Peter doing most of the work.

So when the medical bills started piling up a few years ago, they weren’t about to sell their home. They signed up for a reverse mortgage that gave them $20,000 upfront, a line of credit, and $400 a month for as long as one of them lives in the house.

“I’ve been here 50 years, sweetheart,” said Diane Carrara, 72. “If I have to take an ambulance out of the hospital to die here, that’s what I’ll do.”

This determination to leave your home feet first, or not at all, is part of what prompted 107,367 government-insured reverse mortgages in 2007 — a 41 percent jump from the previous year, according to the National Reverse Mortgage Lending Association.

$4 trillion in equity

Seniors own $4 trillion in home equity and 55 percent of retirees have less than $50,000 saved, making a reverse mortgage one of the few options for income after you can no longer work, said Colin McCormick, reverse-mortgage product executive for Bank of America in Charlotte, N.C.

But that real-estate cache also makes retirees a target for legitimate and unscrupulous salespeople alike, especially now that the credit crunch has dried up other lending sectors. Reverse mortgages are given based solely on the home value and borrower’s age, which must 62 or over, with no credit check needed.

A reverse mortgage lets you tap the value of your house without selling it. The catch: fees are high and the loan balance grows every year — so once you’ve signed the papers there’s almost no turning back.

Closing costs are roughly double those of a traditional mortgage, largely because you pay 2 percent of the value of your home for Federal Housing Administration insurance that guarantees you won’t end up owing more than the house is worth.

The vast majority of reverse mortgages are insured by FHA, which caps the loan at $362,790 or less, depending on average home values in your county.

So why are so many seniors pursuing this expensive loan?

“The emotional attachment to a home is real,” said John Rother, policy director for AARP. “Many people really do want to be able to stay in their homes, maybe not forever, but as long as they can afford it.”

Moreover, there are costs associated with moving, both financial and emotional, said Eric Bachman, chief executive of Golden Gateway Financial, a San Francisco reverse-mortgage provider.

“People who have lived in a home for 30, 40 years, they are entrenched in a community,” Bachman said. “When you pick them up and move them, their life changes in fundamental ways aside from the money.”

But senior advocates worry that these strong ties are encouraging reverse mortgages in unsuitable situations. They want seniors to look at their needs 20 or 30 years down the road before deciding to start spending their hard-saved home equity.

“Too many seniors don’t realize how expensive and complicated a reverse mortgage is until it’s too late,” said Sen. Claire McCaskell, D-Mo. “Fee after fee is tacked on to their bill while the interest is eating away at their home equity, which is often their only real asset.”

McCaskell sponsored legislation that the Senate passed recently to beef up counseling for potential borrowers and prohibit lenders from tying a reverse mortgage to the purchase of insurance or another investment. Companion legislation is pending in the House.

Reverse mortgages are best suited for people in their mid- to late-70s who no longer can work, AARP’s Rother said. They should be a last resort; cash-strapped seniors should first get a job or tap 401(k) or IRA savings, said Greg McBride, senior financial analyst at Bankrate.com in North Palm Beach, Fla.

Detailed budget

Anyone considering a reverse mortgage should make a detailed budget that takes into consideration late-in-life medical expenses and emergency situations, said Rockville, Md., financial planner Karen Schaeffer. Consider other options, such as a continuing-care retirement community.

“When people are spending the money out of the equity in their home, they’re assuming, ‘I’m just going to die, it won’t be a problem,’ ” Schaeffer said.

Older people don’t usually die suddenly; instead their abilities decline and they become unable to care for themselves, said Dennis McCullough, an associate professor at Dartmouth Medical School and author of “My Mother, Your Mother: Embracing Slow Medicine, the Compassionate Approach to Caring for Your Aging Loved One.”

That’s why it’s important to decide upon a reverse mortgage in consultation with children or other family, McCullough said. You need their buy-in if they’ll eventually be helping you with home maintenance or trips to the doctor.

If an illness forces you into a nursing home for over a year, or you’re unable to maintain the house, the reverse mortgage becomes payable — usually forcing you to sell the home to pay the loan balance. If you can’t move in with relatives, that means entering a publicly funded facility.

“We’re talking lowest standard of care,” Schaeffer said.

So before taking out a reverse mortgage, look into government programs that help seniors defer property taxes, or consider whether your goals could be met through a home equity line of credit, even if you have to get a part-time job until the interest is paid back.

Kathy and Barrie Freeman of Plymouth, Calif., found out the hard way it’s usually a one-way decision.

When they took out a reverse mortgage in July 2005 to build a garage and barn, Kathy was only 59, three years short of the minimum age to obtain the loan. So she had to be taken off the title of the house in order for Barrie, then 70, to qualify.

“They said, ‘There’s no problem, when you turn 62 you can refinance and get back on,’ ” Kathy Freeman said.

But now that Freeman turns 62 this month, they can’t afford to refinance — they spent the upfront cash on construction and the loan balance has climbed because of interest and fees. To pay it off, they’d need to sell the house.

“We were flat-out misled,” Freeman said. Their reverse mortgage provider, Wells Fargo, declined to comment.

“If my husband were to predecease me, within a week or two of that happening I would have to put the house up for sale,” said Freeman, who could remain in the house if her name were on the title. “Everyone swears you shouldn’t have to make decisions like that for two years.”

Bottom line, reverse mortgage experts say: Obtain a reverse mortgage only if you have no other way to pay for food and shelter in your declining years.