Recently, during a consultation, there was a case weighing the options between downsizing and a reverse mortgage. A couple found it burdensome to maintain a large home after their children became independent. They were deeply contemplating whether to sell their house and move to a smaller place or to stay in their current home while utilizing only a portion of their equity. In high housing price areas like Monterey, this choice can be particularly significant.

Downsizing involves selling a home to pocket the profit and reduce maintenance burdens. In contrast, a reverse mortgage allows homeowners to keep their house while converting part of their equity into cash. According to Zillow, the average home value in Monterey is $1,180,394 as of June 2026. The larger the equity, the more funds can be accessed through a reverse mortgage.

A reverse mortgage is a product that allows homeowners aged 62 and older to borrow against the value of their home. There are no monthly repayments. Borrowers can choose to receive funds as a lump sum, monthly payments, or a line of credit. The principal and interest are settled when the home is sold, the homeowner passes away, or the home is no longer used as the primary residence.

There are three payment options: lump sum, monthly payments, and line of credit. If funds are received as a line of credit, the unused portion increases the available limit. This means there's no need to take money in advance if it's not urgent. Downsizing does not offer such options; selling the house results in a one-time influx of cash.

The HECM, insured by the Federal Housing Administration, is the only type guaranteed by the government. It is a non-recourse loan, meaning that if the home value falls below the loan balance, heirs are not responsible for the excess. The ability to continue living in a familiar neighborhood without moving is often highlighted when compared to downsizing.

However, the costs are not low. When factoring in origination fees, initial mortgage insurance premiums in the 2% range, and closing costs, the initial burden is greater than that of a standard mortgage. Over time, as equity decreases, the assets left for children also diminish. If property taxes and insurance premiums cannot be continuously paid, there is a risk of default, which is another point of difference from downsizing.

Financial capability assessments are also conducted. Credit history and income are reviewed. If there are any tax delinquencies, a portion of the loan may be set aside for property taxes and insurance. This is not to restrict access to funds but rather a safeguard to prevent future issues.

The average property tax rate in California is about 0.71%, but this figure includes existing owners who benefit from Prop 13's lower rates. Recently purchased homes or those pending reassessment typically face rates between 1.1% and 1.3%. Buying a cheaper home through downsizing can lower property tax burdens, while choosing a reverse mortgage means continuing to manage the current home's property taxes. This difference becomes a practical criterion that distinguishes the two options.

The loan limit is determined by age, home value, and interest rates. The older the borrower, the higher the limit. The higher the home value, the greater the limit. Lower interest rates are also advantageous. All three factors are particularly significant in high-value areas like Monterey.

If property taxes are burdensome, there are other options. California operates a program that allows low-income homeowners aged 62 and older who meet income requirements to defer property tax payments. Exploring these alternatives before deciding on a reverse mortgage is also a viable approach.

People aged 65 and older make up 16.5% of California's population. As the retirement population grows, households are increasingly faced with the dilemma of whether to downsize or opt for a reverse mortgage.

When a homeowner passes away, heirs decide what to do. They can sell the house to settle the loan, pay off the balance and inherit the home, or transfer it to the lender. One of these three options will be taken. There are actual scams targeting the elderly. Offers that suggest giving away a house for free should be approached with skepticism.

Before applying for a HECM, a mandatory counseling session with a HUD-approved counselor must be completed. It is advisable to carefully consider which option, downsizing or a reverse mortgage, is right through consultations and family discussions. There is no need to rush.

HUD counseling can be obtained online or by phone. The cost is usually minimal. A certificate of the counseling results is required to proceed with the loan application.