Should You Tap Home Equity or Sell Your House?
For many retirees, the hardest part of life after work isn’t having more free time but it’s making a fixed income cover rising costs. Groceries, insurance, medical bills, taxes, and utilities all seem to creep up year after year. For homeowners, though, there’s often one major asset that can help ease the strain: the equity tied up in their house.
Broadly, there are two main ways to unlock that value. One is to sell the home, cash out the equity, and move into a smaller or less expensive place. The other is to use a reverse mortgage, which lets you convert part of your equity into cash without taking on a new monthly mortgage payment. Choosing between those paths isn’t simple, and the right answer will depend on your finances, your health, your family, and what you want your later years to look like.
A reverse mortgage allows homeowners, typically older adults, to borrow against their home equity and receive the money as a lump sum, a line of credit, a monthly payout, or some combination of these. Unlike a traditional loan, you don’t make monthly principal and interest payments. Instead, the balance grows over time and is paid back when you sell the home, move out permanently (such as into long-term care), or pass away.
For retirees with significant equity but limited monthly income, this can be a lifeline. Someone living largely on Social Security, which is about $2,000 a month on average, may find it difficult to keep up with higher living costs, property taxes, insurance, and medical bills. Regular payments from a reverse mortgage can supplement that income and help cover everyday expenses without forcing a move out of a beloved home. It can also fund aging-in-place improvements like handrails, ramps, or bathroom modifications that make the home safer and more comfortable.
In recent years, reverse mortgages have shifted away from their reputation as a “last resort” product. Financial planners increasingly view them as one tool among many in a retirement strategy, and some highly educated professionals and higher-net-worth households are using them more intentionally, whether to shore up cash flow, delay drawing down investments, or protect against market volatility. In the right circumstances, a reverse mortgage can give retirees flexibility and breathing room.
But the advantages don’t come without tradeoffs. To qualify, you need substantial equity, and not everyone has enough to borrow against meaningfully. Reverse mortgages also come with upfront costs and interest that accumulates over time as the loan balance grows. Perhaps the most emotionally difficult aspect is that every dollar you draw and every month that interest compounds reduces the equity left in the home and therefore the inheritance available to your heirs.
That’s why open communication is crucial. Before moving forward, families should sit down together and discuss what a reverse mortgage would mean. Adult children may have expectations about inheriting the house or its full value. Parents may feel torn between preserving a legacy and ensuring they can live comfortably and with dignity. No one should sign up for a reverse mortgage without understanding that they are, by design, spending down their home equity.
There’s also the ongoing responsibility of homeownership. Even with a reverse mortgage, you’re still required to pay property taxes and insurance and keep the home in good repair. Those costs are not optional, if you fall behind, the lender can ultimately foreclose. In other words, a reverse mortgage doesn’t remove the financial responsibilities of owning a home; it just changes how you access your equity.
Selling the home is the more traditional approach. This can make sense if you want or need a major change, like moving closer to family, relocating to a different climate, or downsizing from a large property to something easier to maintain. If your home has appreciated significantly, a sale may allow you to “cash out,” simplify your life, and either purchase a more modest home or move into a rental with fewer responsibilities.
For some retirees, selling and renting can be surprisingly sustainable. If you’re able to net, for example, $400,000 from a sale and your rent is around $2,000 a month, that nest egg can potentially cover housing costs for many years, especially when paired with Social Security and other income. In a strong local market where prices are still relatively high, selling can lock in gains and remove the risk that your home value could stagnate or decline.
However, selling comes with its own set of challenges. Real estate markets are highly local, and conditions in your area, and in the place you’d like to move, matter a lot. If your current market is sluggish, you might not get the price you’re hoping for. If you’re buying again in a similarly priced or more expensive market, transaction costs (agent commissions, closing costs, moving expenses) can eat into your equity and limit the benefit of the move.
Taxes are another consideration. Depending on how much your home has appreciated and your specific situation, you may owe capital gains taxes on part of the sale proceeds. Inflation also complicates the picture: if the cost of living continues to rise, money from a sale may not stretch as far as you expect over the long term.
It’s also important to remember the non-financial side. A home isn’t just an asset, it’s memories, routines, neighbors, and community. For some retirees, the emotional cost of leaving a longtime home outweighs the financial advantages of selling. For others, the relief of shedding maintenance burdens and yardwork, or the excitement of moving somewhere new, makes the decision easier.
In some scenarios, a combination approach can be the most effective. If you want to move to a “right-sized” or more accessible home, you may be able to sell your current house and then use a reverse mortgage for purchase on the new property. That structure lets you put down a portion of the price in cash and use a reverse mortgage for the rest, giving you a new home that better fits your needs without taking on a traditional monthly mortgage payment. This can be especially attractive for retirees looking to relocate to be closer to grandchildren, join a 55-plus community, or settle into a place that better suits their health and lifestyle.
Ultimately, there’s no one-size-fits-all answer to the question of whether you should get a reverse mortgage or sell your home. A reverse mortgage may be better if eliminating your monthly mortgage payment, staying put, and securing a steady stream of supplemental income are top priorities. Selling may be the better move if your local market is strong, you want or need to move, and you’re comfortable handling the tax and planning implications of receiving a large lump sum.
The key is to treat your home equity as part of a broader retirement plan, not just a last-minute solution. That means running the numbers, talking with your family, and consulting professionals, such as a financial planner, tax advisor, or housing counselor, who can walk through the long-term consequences of each choice. With careful planning and clear communication, your home can support not just where you’ve been, but where you want the next chapter of your life to go.