Reverse Mortgage vs. Downsizing: Which Saves More Long Term?

Many homeowners are surprised to find that their housing costs don’t always shrink as they age. Property taxes rise, and maintenance gets more expensive, while your retirement income may be fixed. That reality forces many older adults to ask a difficult question: Is it cheaper to stay put using a reverse mortgage, or to sell the house and downsize?

Both options can reduce your financial pressure, but they do it in very different ways and with different long-term trade-offs. Understanding how each strategy affects cash flow and equity can help you make a more informed decision.

In this article (Skip to...)

• What downsizing really costs
• How a reverse mortgage works as an alternative
• The bottom line

What downsizing a home really costs

Downsizing typically means selling a larger home and either buying something smaller or renting instead. On paper, it seems like an obvious way to cut expenses. The potential financial benefits of downsizing include:

• Lower property taxes: A lower-cost home usually leads to a smaller tax bill.
• Reduced maintenance and utilities: Smaller homes tend to cost less to heat, cool, and repair.
• Equity access: Selling can free up a lump sum of cash that can be invested or used to supplement your retirement income.

But downsizing isn’t free, and the long-term costs are often underestimated. Common downsizing expenses and risks include:

• Transaction costs: Real estate commissions, closing costs, inspections, and moving expenses can easily reach tens of thousands of dollars.
• Higher interest rates: Buying a new home later in life often means taking out a mortgage at current rates, which may be significantly higher than the rate on your existing loan.
• Rising housing costs: Rent and HOA fees tend to increase over time, which can strain a fixed retirement income.
• Loss of housing stability: Once you sell, you give up control over future housing costs and may be forced to move again if expenses rise.

For retirees who plan to live 20 or 30 more years, these factors can erode much of the savings downsizing initially appears to offer.

How a reverse mortgage works as an alternative

A reverse mortgage allows homeowners age 62 or older to convert part of their home equity into cash while continuing to live in the home. There are no required monthly mortgage payments as long as the borrower continues paying for property taxes, homeowners insurance, and basic maintenance.

Here are some ways a reverse mortgage can reduce your long-term costs:

• Eliminating monthly mortgage payments: This can significantly improve cash flow, especially for retirees with a limited income.
• Creating a buffer for property taxes and maintenance: Loan proceeds can be used to cover rising taxes, insurance premiums, or home improvements.
• Preserving homeownership: Staying in a familiar home can reduce the emotional and financial stress of relocating.

Unlike downsizing, a reverse mortgage doesn’t require giving up the home or coordinating and paying for a move. The loan balance grows over time, but repayment is deferred until the borrower sells the home, moves out permanently, or passes away.

Which option saves more money long term?

Downsizing can lower your housing expenses, but it won’t eliminate your risk altogether. A reverse mortgage keeps homeowners in place and converts equity into usable cash, which can be especially valuable when property taxes and maintenance costs rise faster than income. The right choice depends on how long you plan to stay in the home, how much equity you have, and whether stability or relocation better supports your retirement goals.

Before deciding, you may find it helpful to compare the projected costs under both scenarios. Running the numbers side by side, and factoring in the time horizon, tax implications, and lifestyle preferences, can reveal which option truly saves you more money in the long run.