Australia
The question most retirees ask is: should I stay in my home or downsize? The financial question underneath it is different: what is the total 10-year cost of each option, and which leaves more money available for the years ahead?
Both strategies are legitimate. They suit different circumstances, different values, and different financial positions. The problem is that most people make the decision based on emotion and assumption — not on the numbers.
The True Cost of Downsizing
Downsizing looks simple: sell the larger home, buy something smaller, keep the difference. In practice, the transaction costs are substantial and rarely modelled in full.
On a $1,200,000 home, selling to move into a $750,000 apartment in the same city:
- Real estate agent commission (approximately 2%): $24,000
- Conveyancing on sale: $1,800
- Moving costs: $5,000–$10,000
- Stamp duty on new purchase (varies by state — confirm current rates): approximately $28,000–$40,000 in most states
- Conveyancing on purchase: $1,500
- Potential renovation or fit-out at new property: $10,000–$30,000
Total transaction costs: approximately $70,000–$107,000
Net equity released after costs: approximately $343,000–$380,000.
That equity can be invested, placed in superannuation through the downsizer contribution (up to $300,000 per person for eligible homeowners aged 55+), or held as accessible savings.
Tax treatment varies by individual circumstance — speak with your accountant before making any decisions based on tax considerations.
Eligibility criteria and thresholds for the downsizer super contribution are subject to change — confirm current rules with the relevant authority.
The True Cost of a Reverse Mortgage Over 10 Years
For the same homeowner, staying in the $1,200,000 property and taking a $200,000 reverse mortgage line of credit:
Draw pattern: $30,000 in year 1, $18,000 per year in years 2–10. Total drawn: $192,000.
Compound interest at approximately 8.5% per annum on a staggered draw over 10 years: approximate loan balance at year 10 is $340,000–$370,000.
The interest cost — the difference between total drawn ($192,000) and the loan balance ($355,000) — is approximately $163,000 accumulated over 10 years.
Additionally, the ongoing costs of occupying a larger property continue: higher rates, higher insurance, higher maintenance, higher utilities. These costs disappear on downsizing. They persist with a reverse mortgage.
Fees and rates vary by lender and are subject to change — confirm current pricing with your broker.
Talk to Key Choice Lending about your options.
Key Choice Lending has access to 72+ lenders and has supported Australian borrowers through more than $1 billion in transactions. Founder Matthew Clark is a two-time Amazon bestselling author and Better Business Award winner. Book a Strategy Session — no obligation, focused on your situation.
The 10-Year Comparison in Plain Terms
- Upfront cost: $70,000–$107,000
- Equity released immediately: $343,000–$380,000
- No ongoing compound interest cost
- Smaller property — lower annual holding costs
- Super contribution opportunity available (confirm eligibility)
- Must move
Reverse mortgage:
- Upfront cost: low (establishment fees only)
- $192,000 in accessible funds over 10 years
- $163,000 in compound interest cost over 10 years
- Higher ongoing holding costs of larger property continue
- Equity continues to erode year on year
- Stay in your home
The financially rational break-even point: if the compound interest cost of the reverse mortgage over your expected remaining time in the property exceeds the transaction cost of downsizing, downsizing is the better financial outcome. At 10 years, most scenarios favour downsizing. At 3–5 years, the reverse mortgage's lower upfront friction often wins.
The Centrelink Dimension
For those receiving or eligible for the Age Pension, the two strategies have different implications.
Proceeds from downsizing not placed in super count as assessable assets under the assets test. A large lump sum can reduce or eliminate Age Pension entitlements for asset-rich retirees.
The downsizer super contribution removes up to $300,000 per person from the assets test — a significant Centrelink planning tool for eligible retirees.
Reverse mortgage loan balances, as they grow, reduce net assessable assets, which may improve pension entitlements over time.
This interaction is complex and individual — the right structure depends on your specific asset position and pension entitlement level. A financial adviser familiar with Centrelink rules should be part of this decision.
The One Calculation to Do Before Deciding
For your own numbers, calculate: what is the compound interest cost of the reverse mortgage at your likely draw rate over your expected time in the property? Compare that to the full transaction cost of downsizing, including stamp duty and selling costs.
If the interest cost is lower than the transaction cost, the reverse mortgage is financially rational for your time horizon. If higher, downsizing delivers better financial value — even before accounting for the ongoing cost savings of a smaller property.
Run both numbers. The answer is in the comparison.
Book a Strategy Session. Make the Move.
The information provided in this blog is for educational purposes only and should not be considered financial advice. Always consult with a professional financial advisor or lender for specific lending decisions.
