A couple nearing retirement in Cheyenne shared their dilemma during a consultation about two options: downsizing by selling their current home and moving to a smaller one, or keeping their home and utilizing a reverse mortgage. They were unsure which option would be better. Both methods have their merits, so let's break down the differences one by one.

First, let's clarify what a reverse mortgage is. Simply put, it is a product where, instead of paying money to the bank each month like a traditional loan, the bank pays money to you. Homeowners aged 62 and older can choose to receive funds in the form of a lump sum, monthly payments, or a line of credit, using their primary residence as collateral. This money is repaid when the home is sold, the owner passes away, or no longer lives in the home. If the term is unfamiliar, think of the HECM product, which is guaranteed by the Federal Housing Administration. It's worth noting that this is the only type of reverse mortgage backed by the government.

To compare with downsizing, you first need to know the value of your current home. According to Zillow data as of July 31, 2026, the average home value in Cheyenne is $392,827, which has increased by 3.4% over the past year. Selling this home to move to a smaller one would allow them to pocket the difference, while receiving a reverse mortgage would enable them to convert part of their equity into cash while still living in the home.

Taxes are also a point of comparison. Wyoming's average effective property tax rate is around 0.57%, which is among the lowest in the nation. Whether they choose to downsize or opt for a reverse mortgage, they will still need to pay property taxes. However, it's important to remember that if they cannot continue to pay property taxes with a reverse mortgage, it could lead to default.

As of 2024, the percentage of the population aged 65 and older in Wyoming is 19.8%, which is higher than the national average. Additionally, Wyoming has been noted as one of the states with the fastest-growing aging population in the U.S., leading to an increasing number of households considering their housing options after retirement.

When comparing the two options, downsizing allows for a lump sum of cash while reducing maintenance costs, but it comes with the burden of moving and settling in. A reverse mortgage offers the advantage of staying in a familiar home without the need to move, and the fact that there are no monthly payments is also appealing. HECM is a non-recourse loan, meaning that if home values decline, heirs are not required to pay the difference.

However, it's essential to be aware of the costs associated with a reverse mortgage. Initial costs, including origination fees, mortgage insurance premiums of about 2%, annual maintenance fees of around 0.5%, and closing costs, can be higher than those of a traditional mortgage. Over time, the equity may decrease, which is a crucial factor to consider when comparing it to downsizing, as it could reduce the assets passed on to children.

How to manage the funds received is also a consideration when comparing with downsizing. Funds from a reverse mortgage do not affect Social Security or Medicare benefits, but if they are receiving benefits like Medicaid or SSI that are based on income and asset criteria, the way they hold the funds could affect their eligibility.

It's also good to know about the spouse protection rules if only one spouse is listed as the borrower. HUD regulations allow the non-borrowing spouse to continue living in the home even if the borrowing spouse passes away, provided certain conditions are met.

To apply for a HECM, one must pass a financial assessment and undergo mandatory counseling with a HUD-approved counseling agency. Whether downsizing or opting for a reverse mortgage, it's difficult to say that one is definitively better than the other, so it's advisable to seek thorough counseling and discuss with family before slowly deciding on the option that best fits your household. This article is not investment or legal advice, and it is recommended to consult with a professional before applying.