Picking the Right Mortgage Options

Your house may be holding you back from retirement, especially if you can't afford it and can't sell. — Trish Gant/Alamy

3. Sell and buy something smaller. Your house might be too big or expensive, or have stairs and slippery floors that can be hazardous as you get older. Buy an efficient new home and put the rest of the sale proceeds into investments. To accommodate visiting children of all ages, choose sofas that convert into beds (put feather ticks over the thin sofa mattresses; they're a dream to sleep on — as my kids will tell you).

4. Sell and rent. My friends Vicki and Sam looked for a smaller house, then decided to rent a two-bedroom apartment at the edge of a wood. A fee-only investment adviser manages the proceeds of their home sale. They take their allotted 4 percent of total assets per year (plus an annual inflation adjustment) for spending money. That, plus their modest savings, Social Security and no home upkeep costs, is giving them financial freedom that they haven't had in years. Apartments are also a good choice for widows and widowers who otherwise would have to manage an aging house without help.

5. Stay put and take a reverse mortgage. Here, you borrow against your home equity and don't have to repay until the home is sold. If it sells for less than the loan against it, the lender swallows the loss. Lenders have slashed upfront costs. For more information about reverse mortgage loans, go to aarp.org/revmort.

Next: You may need to simply walk away.