Is there some AARP advocacy effort that can be made to help retired borrowers?
I can't answer your question to AARP - not sure how much AARP gets into government / lender and IRS rules and regulation.
This is kind of long but hopefully it will shed some light on your predicament and give you some information that you might not have thought about.
I just wonder why you did not use your HELOC to do such a major renovation?
As with anybody else, regardless of age or employment status, lenders will look at the income that you have coming in and the amount / obligations which you owe to any creditor, along with your credit score to determine their approval of a loan.
Just a guess, but at this time, you may also be involved in a lender approval slowdown if you have a locked in rate of 4.25% with current mortgage rates running over 5% now and those will probably be going up since the FED is probably going to continue to raise rates in order to slow inflation. The other thing is right now, home values are in flux because of the changes in the marketplace - the buying frenzy which had pushed up values is now cooling off - drastically.
Using or borrowing from one's retirement account is never a good way, IMO - doubly so, if one is in an upper age category and is no longer working.
No, you cannot borrow against an IRA - per the IRS - Loans are not permitted from IRAs or from IRA-based plans such as SEPs, SARSEPs and SIMPLE IRA plans. Loans are only possible from qualified plans that satisfy the requirements of 401(a), from annuity plans that satisfy the requirements of 403(a) or 403(b), and from governmental plans.
You also cannot rollover any outstanding loan balance from another type of (employer) retirement plan to an IRA. In fact, that action could even disqualify the IRA transaction completely by the IRS. (see the same IRS link above) If you do borrow from an IRA - the IRA is no longer classified as an IRA and the whole amount could be then classified as income and taxed accordingly. It cannot be pledged as collateral.
You may want to review that IRS (FAQ) page in total to make sure you understand what one can and cannot do. Even the sponsor of the type of plan (457 / 401K) which you may have may limit the loan capabilities in their plan - read your individual plan documents.
You also said:
We were hoping to defray taxes on our IRA withdrawals, which we have used to fund the remodel, so refinancing seemed like a great option.
. . . . We had to demonstrate that we were making IRA withdrawals of $11K per month and had enough funds to do this for three years;
You maybe messing with fire here - all that is gonna be classified as income and there will be tax consequences as you know but the other real problem is the amount that you and your hubby will have to pay for those Medicare Part B premium & premium surcharges (IRMAA - Income Related Monthly Adjustment Amount) which are based on income - actually the income one reports (2) years before.
Medicare.gov Part B Cost
Also if your lender / potential lender is seeing that you are taking money from your retirement account now even though you say it is to pay for this major renovation - it will appear in numbers that you are using this as income that you need and thus they will forecast the same amount for the long term.
Again, Lenders go by numbers / income / other financial obligations / credit score / appraised value less what is owed - how you manage your money is not what they consider.
It seems that you are gonna have to do some real planning here and maybe put off the rest of the renovations until the house main mortage is paid off - then apply for a new HELOC - roll into it what is left from the other one and then you will have access to at least 80% of the equity (at the time)
Again, these are just points to consider.
I am WAY older than you, been retired for over a decade, home about the same age, but I just got a new HELOC with No problems; in fact it was done in record time. I will use it only as needed for anything that may come up where I don't want to spend or tie up the cash upfront - like a new roof - so it's not the age - it is the income and home value less what you owe on it that seems to be causing the problem. Sorry.
It's Always Something . . . . Roseanna Roseannadanna