Reverse Mortgage vs. Downsizing: Which Actually Makes Sense?

Both a reverse mortgage and downsizing solve the same underlying problem — accessing the equity you've built up in your home — but they get there in almost opposite ways. One lets you stay exactly where you are; the other means moving, but with far more of your equity actually in hand. Neither is universally right. Here's how to tell which one fits your situation.

How a reverse mortgage actually works

A reverse mortgage (the main product in Canada is HomeEquity Bank's CHIP program) lets homeowners 55+ borrow against their home's equity — up to roughly 55% of its value — without selling or making any monthly payments. You keep living in your home and keep the title. Interest accrues on the loan balance over time, and the full amount (principal plus accumulated interest) becomes due when you sell, move out permanently, or pass away. Because it's borrowed money against your own equity, it's not taxable income and doesn't affect OAS or GIS.

What it actually costs

This is the part that gets underweighted. Reverse mortgage interest rates typically run well above a standard mortgage rate — commonly in the high-single to low-double digits — and because there are no payments, that interest compounds against the balance every year you hold it. A reverse mortgage taken out in your early 60s and held for 15-20 years can consume a very large share of your home's equity by the time it comes due, simply through years of compounding. It's not a scam or a bad product — it's an expensive one, and that's a fundamentally different thing.

How downsizing compares

Downsizing releases equity as a lump sum, in cash, immediately — not as an ongoing loan balance that grows against you. The trade-off is obvious: you have to actually move, which is real work and a real emotional adjustment, in a way that staying put with a reverse mortgage isn't. See our full cost breakdown for the actual numbers on what a typical downsize releases after selling and buying costs.

When a reverse mortgage genuinely makes sense

• You're deeply attached to your specific home and moving isn't something you're willing to consider under any circumstances.
• You need a modest, ongoing supplement to income rather than a large lump sum.
• You expect to stay in the home only a relatively short number of years (reducing how much interest compounds before the balance comes due), or you're comfortable with your estate absorbing the eventual cost.

When downsizing genuinely makes more sense

• The home itself has become the problem — stairs, maintenance, more space than you use — not just a source of untapped equity.
• You want to actually access a large share of your equity now, for retirement income, travel, or helping family, rather than borrowing a smaller share against a compounding cost.
• You're open to a smaller, lower-maintenance property or a 55+ community that could genuinely improve your day-to-day life, not just your finances.

If timing is the only thing making downsizing feel risky, it's worth knowing that fear specifically has a solution — see how Homesafe removes the "sell before I have somewhere to go" risk entirely.