

But the older homeowners who use these mortgages—and the family members who advise them—can still find ways to structure a reverse mortgage to meet their needs.

Reverse mortgages allow people ages 62 and older to convert their home equity into cash. But instead of the homeowner writing a check to the bank each month, the bank pays the homeowner, who can elect to receive a lump sum, a line of credit or monthly payments. The loan is due, with interest, when the borrower dies, moves or sells the house. Heirs typically sell the house, pay the balance and keep whatever is left.

With actuaries projecting $2.8 billion in losses on reverse mortgages over the next 30 years, the Federal Housing Administration—which insures virtually all reverse mortgages—recently announced sweeping changes to the program.

By April 1, the agency will discontinue the fixed-rate "standard" reverse mortgage, a loan that 70% of borrowers elect in part because it generates the largest lump-sum payout. (Typically, these loans generate from 62% to 77% of a home's appraised value, depending on the homeowner's age, and often have lower fees.)

Regulators are eliminating this option because it accounts for a disproportionate share of the defaults on reverse mortgages, which occur when homeowners are unable to pay their property taxes or homeowners insurance.

"For many homeowners, taking all eligible cash upfront results in insufficient cash flow in later years for property upkeep, taxes and insurance," according to a November report to Congress from the Department of Housing and Urban Development.

When deciding which type of reverse mortgage is right for you, it's important to weigh the amount you need, the fees you will pay and the type of payout that best suits your financial goals.

If you need a large lump sum, the best choice may still be a standard loan. But to get one with a fixed interest rate, you must act fast. You'll need to submit an application, complete a reverse-mortgage counseling program, and receive a case number by March 31, and close on the loan by July 1, according to the FHA.

After April 1, all standard loans will have adjustable interest rates.

Borrowers who want a fixed rate after that date will have to use a reverse mortgage called a "saver," which pays 10% to 14% less than the standard one. (Savers also come with adjustable rates.)

In lieu of a lump sum, homeowners can elect to receive monthly payments for life. A line of credit works best for those who "need a certain amount per month but also want to prepare for a rainy day," says Barbara Stucki, chief executive of NestCare, a company developing an alternative to conventional reverse mortgages.

Fees are another consideration. To cover its potential losses on reverse mortgages—which can occur when a home isn't worth enough to repay the loan—the FHA pockets as much as 2% of the value of the property. But with lower loan limits, the saver's upfront "mortgage insurance premium" is just 0.01%.

Regulators are contemplating other changes. Pending approval from Congress, they plan to require lenders to conduct financial assessments of borrowers and set aside some proceeds to cover property taxes and insurance.