If I am Downsizing, Would a Reverse Mortgage Help Me?

A reverse mortgage can help you downsize, If you’re planning to sell your current home and downsizing or “rightsizing”  a reverse mortgage might play a supporting role, depending on your cash flow and timing. 

Typically, downsizing means selling your big $400,000 house, pocketing the proceeds (say, $380,000 after fees), and buying a $200,000 condo, leaving you $180,000 to live on. A reverse mortgage would allow you to put 30-50% down of the purchase price of the new home based on your age. This allows you to not liquidate all your cash proceeds to purchase the $200,000 condo, and keep more money to invest. 

Another angle: If you’re rightsizing  to a more expensive home but still want extra cash without a monthly mortgage, you can use the reverse mortgage to purchase the new home.  Say you are selling your current home that is worth $400,000 and has no mortgage and you will clear $380,000.  You find a brand new patio home worth $600,000, you could put $350,000 down from the proceeds of your home, and still not have a mortgage payment. You would also be able to save the additional $30,000 and put it in the bank.

Whether a reverse mortgage is a good tool for you when downsizing depends heavily on your individual financial situation and goals. It’s not a one-size-fits-all answer.

Potential Benefits of a Reverse Mortgage When Downsizing:

Access to Cash:

Downsizing often means selling your larger home and moving to a smaller, less expensive one. A reverse mortgage on your new, smaller home could provide access to cash from the equity you’ve built, even if you’ve used some of the proceeds from the sale of your previous home to purchase the new one. This cash can be used for various purposes:

• • • Supplementing Retirement Income: This could help bridge any gaps in your retirement income.   
    • Home Improvements: You might want to make modifications to your new home to make it more accessible or better suited to your needs.   
    • Paying Off Debts: This can help simplify your finances and reduce monthly expenses.   
    • Healthcare Costs: Unexpected healthcare expenses can put a strain on finances. A reverse mortgage could provide a financial cushion.   
    • Travel or Leisure: You might want to use the extra cash to enjoy your retirement.  

No Monthly Mortgage Payments:

With a reverse mortgage, you don’t have to make monthly mortgage payments. This can free up cash flow, which can be especially helpful on a fixed income.

• • • Maintaining Ownership: You retain ownership of your home with a reverse mortgage, unlike some other options like selling your home and moving into assisted living.   

Reverse mortgages can be a useful financial tool for eligible seniors looking to supplement income, pay for healthcare, or cover living expenses, but they also come with complexities that should be thoroughly understood before proceeding.

Learn more about eligibility requirements for a reverse mortgage, situations where a reverse mortgage is best used, and common myths around reverse mortgage that we debunk with facts