What Is a Reverse Mortgage?
A reverse mortgage allows homeowners age 62 or older to convert part of their home equity into cash without making monthly mortgage payments.
The most common type is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration and regulated by the U.S. Department of Housing and Urban Development.
Here’s how it works in simple terms:
You must be 62 or older
The home must be your primary residence
You continue paying property taxes, insurance, and maintenance
The loan becomes due when you move out, sell the home, or pass away
You can receive funds as:
A lump sum
Monthly payments
A line of credit
Or a combination
You are not “giving the house to the bank.” But you are borrowing against it.
When a Reverse Mortgage May Make Sense
A reverse mortgage can be helpful when:
You want to stay in your home long-term
You have substantial equity but limited cash flow
You don’t have heirs depending on the home
You need funds for medical costs or daily expenses
You want a line of credit for emergencies
According to the Consumer Financial Protection Bureau, reverse mortgages can provide income flexibility — but they also carry costs and long-term consequences.
The Costs Most People Overlook
Reverse mortgages are not free money.
They include:
Origination fees
Mortgage insurance premiums
Closing costs
Interest that accumulates over time
Because no monthly payments are required, the loan balance grows — reducing home equity.
If you move sooner than expected, you may owe more than anticipated.
What Is Downsizing?
Downsizing simply means selling your current home and purchasing or renting a smaller, less expensive property.
The goal is often to:
Reduce expenses
Free up equity
Simplify maintenance
Lower property taxes
Improve accessibility
Downsizing doesn’t involve borrowing. It converts equity into liquid funds.
When Downsizing May Make Sense
Downsizing often works well if:
The home is larger than needed
Maintenance is becoming difficult
Property taxes are rising
You want to relocate closer to family
You want a single-level or safer layout
You want to eliminate a mortgage entirely
According to data from the U.S. Census Bureau, housing remains the largest expense category for older Americans — even after mortgages are paid off.
Reducing housing costs can meaningfully stretch retirement income.
Emotional vs. Financial Trade-Offs
Here’s where the debate becomes personal.
Reverse Mortgage:
✔Stay in familiar surroundings
✔ No move required
✔ Access to tax-free loan proceeds
But:
✖ Rising loan balance
✖ Reduced inheritance
✖ Ongoing home maintenance responsibility
Downsizing:
✔ Lower ongoing expenses
✔ Simpler lifestyle
✔ Liquidity without debt
But:
✖ Emotional attachment to current home
✖ Moving costs
✖ Possible higher HOA or rental costs
There is no universally “correct” answer. It depends on your health, family situation, income stability, and long-term goals.
Important Risks to Consider
The Government Accountability Office has reported that some reverse mortgage borrowers face foreclosure risks if they fail to keep up with:
Property taxes
Insurance
Required home maintenance
This is critical. A reverse mortgage removes mortgage payments — but it does not remove ownership responsibilities.
Questions to Ask Yourself
Before deciding, consider:
How long do I realistically plan to stay here?
Can I maintain this home physically and financially?
Do I want to preserve home equity for heirs?
Would moving improve my daily life?
Do I need income now — or flexibility later?
Write down your answers. Clarity reduces regret.
A Hybrid Strategy Some Seniors Use
Some retirees:
Downsize first
Then consider a reverse mortgage later if needed
Others:
Open a reverse mortgage line of credit but don’t use it immediately
The HECM line of credit can grow over time, offering emergency flexibility.
This strategy requires careful review and counseling.
HUD requires reverse mortgage borrowers to complete independent counseling before proceeding — which is a strong consumer protection step.
The Bottom Line
Reverse mortgages and downsizing are not opposites. They are tools.
One keeps you in place and borrows from equity. The other simplifies life and frees equity.
The best choice is the one that:
Protects your independence
Reduces financial stress
Fits your long-term health outlook
Aligns with your family goals
There is no prize for staying in a house that’s too expensive to maintain.
And there’s no shame in using home equity strategically.
After 55, smart planning isn’t about holding on to everything. It’s about creating stability that lasts.
With care,
Mike Bridges
Founder, The O55 Report