"Your home is both a castle and a high-maintenance piggy bank. Deciding how to 'crack' that bank—by moving or by borrowing—is the most emotional and financial decision of retirement."
The Downsizing Math
Selling the family home and moving to a smaller condo is the "Gold Standard" for unlocking equity.
- Pros: $0 tax (Principal Residence Exemption), lower maintenance costs, and immediate cash to invest for income.
- Cons: Real estate fees (5% commission), land transfer taxes (~2-4% in cities like Toronto), and the sentimental cost of leaving.
The Friction Trap: On a $1.5M home, selling and moving costs can exceed $100,000. If the condo you buy is $1M, you only "pocket" $400,000 after costs. Is that $400k enough to sustain your lifestyle?
The Reverse Mortgage (CHIP)
A reverse mortgage (offered by providers like HomeEquity Bank) allows you to borrow up to 55% of your home's value. You make no monthly payments; the interest simply "accrues" and is paid when you sell the house or die.
- Pros: You stay in your home. The income is tax-free. It does not affect OAS or GIS.
- Cons: High interest rates (usually 2-3% higher than a conventional mortgage). The debt grows exponentially, potentially leaving nothing for your heirs.
Side-by-Side Comparison
| Feature | Downsizing | Reverse Mortgage |
|---|---|---|
| Total Cash | High (Home Value - Condo) | Moderate (~35-50% Value) |
| Monthly Coast | Lower (Reduced Utilities) | Same (Maintenance stays) |
| Legacy | Preserved (Cash + Condo) | Reduced (Compounding Debt) |
Housing Wealth Audit
Ownership Audit
Run the 'Net Proceed' Test
List your home Sale Price minus 6% (fees) minus the new Purchase Price. Is the remainder over $300k?
Audit the STEP-A-HOME
Is your current home physically suitable for an 85-year-old? If no, downsizing is a safety requirement, not just a financial one.
Leverage the Line of Credit
Before a reverse mortgage, consider a traditional HELOC. If you have income, the rates are 50% lower.
Discuss with Heirs
If using a reverse mortgage, tell your children. Avoid a $500,000 debt surprise in your Will.
Conclusion
There is no "Right" answer, only the "Right for You" answer. Downsizing provides freedom and liquidity; a reverse mortgage provides stability and continuity. Use SimRetire to model both scenarios and see how they impact your 30-year cash flow.
SimRetire Editorial Team
Canadian Retirement Experts
This guide has been rigorously reviewed by our editorial team to ensure 100% compliance with 2026 Canadian tax laws and CRA guidelines. Our mission is to provide accurate, independent, and accessible financial education for all Canadians.