When retirees feel that their fixed income is barely enough to cover living expenses, two common questions arise in Albuquerque: Should they sell their home and move to a smaller place, or should they keep their home and tap into their equity for cash? It's not uncommon to see families who feel their fixed retirement income is insufficient start exploring the latter option, which is reverse mortgages.

In simple terms, a reverse mortgage is a loan that allows homeowners aged 62 and older to receive funds using the equity in their home without selling it. Unlike a traditional mortgage that requires monthly payments, with a reverse mortgage, borrowers can receive money in a lump sum, monthly payments, or a line of credit, and repayment occurs when the home is sold, the owner passes away, or the home is no longer used as the primary residence. Among these, the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA), is the most commonly used type of reverse mortgage backed by the federal government (according to hud.gov). The amount that can actually be received depends not only on the home value but also on the age of the younger applicant and the interest rate at the time of application. Generally, the older the borrower and the lower the interest rate, the more money can be accessed, which can lead to different outcomes for households even within Albuquerque. During the application process, a financial assessment is conducted to determine if the borrower can continue to pay taxes and insurance, and failing this assessment may result in the loan not being approved, which is an important consideration compared to downsizing.

In Albuquerque, the average home value based on Zillow is $350,091, which has increased by 1.1% over the past year (as of 2026, according to Zillow). Choosing to downsize allows for a lump sum of cash, but it requires going through the moving and selling process. On the other hand, opting for a reverse mortgage allows homeowners to stay in their current home while securing cash flow, but they must continue to pay property taxes and insurance each month. The effective property tax rate in Albuquerque is around 1.37% on average (according to Ownwell), which is higher than the New Mexico state average of 0.85%, so it's wise to calculate the tax burden regardless of the choice made.

If choosing a reverse mortgage, initial costs must also be considered. When adding origination fees, mortgage insurance premiums (MIP, initially around 2% with an additional annual rate of 0.5%), and closing costs, the initial costs can be higher than those of a traditional mortgage (according to consumerfinance.gov). Additionally, as time goes on, the loan balance increases, which reduces the equity left in the home, potentially decreasing the assets that can be passed on to children compared to downsizing. The risk of losing the home due to default if property taxes, insurance, or maintenance costs cannot be paid is a critical aspect to consider for both options.

However, the advantages of a reverse mortgage include the ability to cover living expenses or medical costs without monthly payments, and the HECM is a non-recourse loan, meaning that if the home value falls below the loan balance, heirs are not required to pay the difference thanks to FHA insurance. Ultimately, whether the simplicity of a lump sum from downsizing or the stability of residence provided by a reverse mortgage is more suitable depends on individual financial capacity and family planning.

New Mexico has a population aged 65 and older that makes up 20.3% of the total, which is higher than the national average of 18% (as of 2024). In Albuquerque, families contemplating these two options are likely to become more common. Before applying for a HECM, a mandatory counseling session with a HUD-approved counselor is required, where comparing downsizing and reverse mortgages again can be beneficial. Given that there have been cases of scams targeting seniors related to reverse mortgages, it is advisable not to rush and to discuss thoroughly with family before making a decision. This article is not investment or legal advice, and it is recommended to consult with a professional before entering into any contracts.