The short version
- A reverse mortgage lets you stay in your home and unlock up to 55% of its equity tax-free, with no regular payments required.
- Downsizing converts your full equity into cash but comes with real, upfront selling and moving costs, plus a new home to buy.
- The two aren't interchangeable answers to the same question — they solve for different things, and the right one depends on whether staying in your home is part of the goal.
- Neither path should be decided from a general range. Both deserve real numbers run against your own property and your own plans.
The same starting point, two different paths
Picture a homeowner, 68, mortgage-free, in a home worth roughly $650,000 — close to the current benchmark price across parts of Waterloo Region. They need about $150,000: some for healthcare costs, some to help a grandchild with a down payment, and a cushion for the years ahead. They don't want to leave the neighbourhood if they don't have to.
There are two structurally different ways to get there. A reverse mortgage keeps them in the home and borrows against it. Downsizing sells the home and converts the equity into cash, some of which goes toward a smaller, less expensive place. Both are legitimate. Neither is obviously better until the numbers are actually run.
Option one: stay, and borrow against the equity
As Canadian Mortgage Trends has reported, reverse mortgages are available to Canadian homeowners 55 and older, and let you unlock up to 55% of your home's equity tax-free, as a lump sum or in stages. On a $650,000 home with no existing mortgage, that ceiling is roughly $357,500 — well above the $150,000 this household needs, so the amount itself isn't a constraint here.
There are no required regular payments. The loan, plus the interest that accumulates on it, is repaid when the homeowner moves, sells, or passes away, at which point it becomes the estate's responsibility. Canada's consumer protections mean the balance owed can never exceed the home's value, even if prices fall or the loan runs for decades.
The cost sits in the financing itself and in how it compounds. Reverse mortgage financing typically runs two to three percentage points above what a comparable conventional mortgage would cost, and because nothing is paid down along the way, the $150,000 borrowed grows every year it sits outstanding. There are also upfront legal, appraisal and closing costs to budget for, and the homeowner remains responsible for property taxes, insurance, and upkeep throughout — the same as any other homeowner.
What this household keeps: the home, the neighbourhood, the routine. What it gives up: a shrinking share of the estate's eventual value, since compounding interest on an unpaid balance erodes equity faster the longer the loan is outstanding.
Option two: sell, buy smaller, invest the difference
Downsizing converts the full $650,000 into cash, but not all of it reaches the household. Selling costs in Ontario aren't fixed by regulation — the Real Estate Council of Ontario is explicit that commission is negotiable between seller and brokerage — but a combined commission plus HST landing somewhere around 4-5% of the sale price is a commonly cited industry benchmark. On $650,000, that's in the neighbourhood of $29,000 to $36,500. Add legal fees and moving costs, and total selling costs commonly run close to $35,000 to $40,000 all in.
That leaves roughly $610,000 to $615,000 net. If the household buys a $450,000 condo or bungalow — itself carrying land transfer tax, legal fees and moving costs on the buy side, easily another $8,000 to $10,000 — they're left with something in the range of $155,000 to $160,000 in cash. Close to the $150,000 they needed, with the rest available to invest or hold as a cushion.
What this household keeps: full liquidity, no accumulating loan balance, and a smaller property that's typically cheaper to maintain, heat and insure. What it gives up: the home itself, the neighbourhood, and every cost and disruption that comes with an actual move — which, for someone who has lived somewhere for decades, is rarely just a financial line item.
Side by side, ten years out
- Reverse mortgage: stays in the home; the $150,000 borrowed compounds for a decade with no payments made against it, leaving a materially larger balance due whenever the home is eventually sold or the estate settles.
- Downsizing: moves to a smaller property; the roughly $150,000-$160,000 net proceeds are available immediately, with no compounding liability attached to them, but the trade is a different, smaller home and a real moving process behind them.
The reverse mortgage's real cost is time. The longer the loan sits before it's repaid, the more of the home's future value goes to accumulated interest rather than the estate. Downsizing's real cost is upfront and one-time — the selling and buying costs are paid once, at the start, and nothing compounds against the household after that. Which structure actually costs more over ten or twenty years depends heavily on how long the reverse mortgage stays outstanding and what borrowing costs do over that stretch — which is exactly why a general comparison like this one is a starting point, not an answer.
What actually decides between them
The honest answer is that the two options aren't really competing for the same goal. A reverse mortgage answers "how do I get cash without leaving?" Downsizing answers "how do I simplify and free up capital, and am I willing to move to do it?" A household that isn't focused on preserving the home's full value for an estate, and genuinely wants to stay, tends toward the first. A household open to a smaller footprint — or one where a lower-maintenance property genuinely improves quality of life — often finds the second nets out ahead financially, precisely because nothing compounds against them afterward.
Either way, the numbers above are illustrative, built around one hypothetical property and one commonly cited cost range — not a quote, and not a recommendation. Before signing anything, run your own property's value, your own selling-cost estimates, and your own timeline against both paths, and loop in a financial planner alongside your mortgage broker if the estate side of the decision matters to you.
Nearly thirty years in Canadian financial services, based in Waterloo Region and working across Ontario. Most people are handed a product — you deserve a plan.
The figures above are illustrative, built around one hypothetical $650,000 property and commonly cited industry cost ranges — they are not a quote and do not represent any specific lender's or brokerage's numbers. Everything here is general information only and subject to full qualification, lender approval and final terms.
Sources: Real Estate Council of Ontario — Consumer Information · Canadian Mortgage Trends — House Rich, Cash Poor: When a Reverse Mortgage Might Make Sense