For many Canadians heading into retirement, their home is their biggest asset which leads them to consider downsizing vs. a reverse mortgage to make the most of their golden years. With detached homes in major cities selling for well over $1 million, it is no surprise that many people see their house as their retirement fund. The idea is simple: sell your home, buy something smaller and cheaper, and use the extra money to support your retirement.

But when you look closer at the numbers, it’s not always that straightforward. Depending on where you live, your age, and your lifestyle, selling your home and buying a condo might not leave you as far ahead as you hoped. In that case, a reverse mortgage could be another option worth considering.

A reverse mortgage allows homeowners aged 55 and over to access up to 55% of their home’s value, tax-free. The best part? You don’t have to make monthly payments. The loan, plus the accumulated interest, is paid back only when you sell your home, move out, or the last homeowner passes away.

Both downsizing and reverse mortgages have their pros and cons. Let’s look at what to consider before choosing which one works best for you.

The True Cost of Downsizing

Selling your house and buying a condo might sound like an easy way to free up cash, but it often comes with surprise costs. Real estate commissions, land transfer taxes, moving costs, and condo maintenance fees can quickly add up. And if you’re buying a new-build condo, HST can further eat into your profits.

Here’s an example based on current market prices in Barrie (based on average costs reported by the BDAR for the first half of 2025). If you sell a detached home for $770,000, after paying a 5% real estate commission, you’d have $731,500 left. Buying a new condo at $500,000 plus $65,000 in HST, paying land transfer taxes of $6,475 and $2,500 for moving costs, leaves you with $157,525. Monthly condo fees of $550 could eat through that in about 10 years. This shows that simply downsizing in the same city may not free up as much money as you hoped.

To really benefit from downsizing, many retirees need to move to a more affordable community but that could mean giving up easy access to family, friends, and specialized healthcare services. If you’re not ready for that trade-off, staying in your home and tapping into your equity through a reverse mortgage might make more sense.

Lifestyle and Space Considerations in Downsizing vs. a Reverse Mortgage

Financial decisions aside, downsizing is also a big lifestyle change. If you love having a backyard, space for guests, or a home office, moving into a smaller condo can feel restrictive. The loss of outdoor space and privacy is something many retirees underestimate. However, if home and yard maintenance is something you want to leave behind, downsizing to condo life may be for you.

A reverse mortgage allows you to stay in your current home and still access the funds you need. You can receive a lump sum or regular payments to cover living expenses, renovations, or even travel without giving up your home.

Thinking About Your Kids and Inheritance

If leaving an inheritance for your children is important to you, downsizing can be a good way to preserve more equity. You’ll own a smaller property outright, and any future appreciation in value goes directly to your estate.

With a reverse mortgage, you still own your home and any appreciation in its value, but interest on the loan adds up over time. Depending on how long you stay in the home and how much you borrow, there may be less equity left for your heirs. Still, your family will never owe more than the home’s value, provided the terms of the loan are met.

Your Age and Long-Term Plans Matter When Choosing Downsizing vs. a Reverse Mortgage

Homeowners as young as 55 can qualify for a reverse mortgage, but the amount you can borrow increases as you get older. A mortgage broker can help you estimate how much you qualify for and compare options from different lenders.

If you plan to stay in your home long-term, a reverse mortgage can provide stability and predictable access to cash. But if you think you might want to sell and move within a few years, downsizing could be the better fit, especially since selling a home with a reverse mortgage means paying off the balance right away, which can include prepayment fees.

Income and Taxes in Retirement

If you downsize, you might invest the leftover money to generate income. But remember that investment earnings are taxable, and that can affect income-tested benefits like Old Age Security (OAS) or the Guaranteed Income Supplement (GIS).

With a reverse mortgage, the funds you receive are tax-free and do not affect your eligibility for OAS or GIS. That makes it a useful option for retirees who want extra cash flow without impacting their government benefits.

Working With a Mortgage Broker Helps You Choose Between Downsizing vs. a Reverse Mortgage

Choosing between downsizing vs a reverse mortgage is not just a financial decision, it’s a personal one. A mortgage broker can help you run the numbers, compare the real costs and benefits of both options, and explain how each choice affects your long-term finances. They can also help you understand setup costs, interest rates, and how much equity you would still have in the future.

If the math works in your favour, downsizing can be a great way to unlock equity and enjoy a simpler lifestyle. But if you would rather stay close to family, friends, and the community you love, a reverse mortgage offers a flexible way to access tax-free funds while staying in your home.

Both paths can work, it all depends on your priorities. Before you decide, give me a call. As a certified mortgage broker, I can help you find the right strategy for your retirement. Reach out to me online to book a free consultation or call me at 705-315-0516.