If you would prefer to retire without selling your home, understanding the advantages, costs and trade-offs of each can help you compare your options. In this guide, we'll compare a reverse mortgage vs downsizing, government support, personal loans and other ways to access additional funds in retirement.

Why do people consider downsizing in retirement?

According to the Australian Institute of Health and Welfare, the home represents a significant portion of wealth for many older Australians. Selling a larger property and buying a less expensive one can release some of that equity to supplement retiremen tincome, repay debts or fund expenses such as travel and healthcare. A smaller home may also cost less to maintain or simply be easier to manage.

While selling can unlock equity, there are costs involved in selling, buying and moving. Before putting up the sold sign, it is worth understanding both those costs and the other options available.

What does downsizing actually cost?

The difference between the price you sell your home for and the price of your next property isn't necessarily the amount you'll have left over. Real estate agent, marketing and conveyancing fees, moving expenses, and the costs of purchasing your new home can all reduce the amount of equity you ultimately release. Stamp duty may also apply and varies between states and territories. Moneysmart recommends factoring these transaction costs into a downsizing decision.

For example, imagine you sell a mortgage-free home for $1.2 million and buy a smaller property for $800,000.The headline difference is $400,000 but a hypothetical cost estimate could look like this:

*Example using standard transfer duty; actual stamp duty and any available concessions depend on your location and circumstances. A current calculator estimate puts standard NSW duty on an $800,000 established property at approximately $32,437.

In this example, transaction costs reduce the initial $400,000 difference by around $67,400, before other potential expenses. Downsizing can still release substantial capital, but if accessing money is your main goal, the amount left after buying and selling costs is a more useful figure to compare with the alternatives.

H2: What are the alternatives to downsizing in Australia?

Whether you choose a reverse mortgage or downsizing, use existing savings, or explore another option depends on your finances, eligibility, goals and how important staying in your current home is. Here are some of the main alternatives to consider:

1. Home Equity Access Scheme (HEAS)‍

The Australian Government's Home Equity Access Scheme allows eligible older Australians to receive a voluntary, non-taxable loan using Australian real estate as security.

• ‍Pros: It can supplement your retirement incomewhile allowing you to remain in your home.‍
• Cons: Eligibility and borrowing limits apply,and its payment structure may not suit every financial need. Interest accrueson the outstanding loan balance over time.

2. Drawing down more of your super

Eligible retirees may be able to draw additional money from their existing super rather than accessing property equity.

• ‍Pros: You're using your own retirement savings rather than taking out a new loan, and your home remains untouched.
• Cons: Drawing down more in the short- term reduces the super available for later and may affect how long your retirement savings last.

3. Home equity release loan

A home equity release loan or a reverse mortgage is a loan secured against your property.

• ‍Pros: You can access funds while remaining in your home, with no regular principal or interest repayments required.‍
• Cons: Interest can be added to the loan balance over time, increasing the amount owed and reducing the equity remaining in your property.

4. Taking out a personal loan

A personal loan provides a lump sum that you repay, generally through regular instalments over an agreed period.

• ‍Pros: You can access funds without selling your property, while a fixed repayment schedule can provide certainty.
• Cons: Eligibility may depend on your income and credit profile, and regular repayments can put additional pressure on retirement cash flow. Interest rates may also be higher than for a loan secured against property.

5. Renting out a room

If you have unused space, taking in a tenant or lodger can generate additional income without borrowing or moving.

• ‍Pros: You can remain in your home while putting spare space to productive use.
• ‍Cons: Income may fluctuate, and there can be tax, insurance and administrative considerations. Sharing your home also won't suit everyone, particularly if privacy is important to you.

6. Downsizing after all

Selling your current home and purchasing a less expensive property can convert some of your housing wealth into money you can use elsewhere.

• ‍Pros: Downsizing can release substantial equity without borrowing, reduce upkeep and provide an opportunity to move somewhere better suited to your retirement.
• Cons: Buying, selling and moving come with costs, and you may have to leave a home and community you value. Finding a suitable replacement property at the right price can also be challenging.

Reverse mortgage vs downsizing — another way to access your home equity

If you're interested in how to avoid downsizing, a home equity release loan offers another option. Eligible homeowners over 55 can access some of their property equity without selling and moving.

With a reverse mortgage, regular principal and interest repayments aren't required. Instead, interest can be added to the loan balance, meaning the amount owed grows and your remaining home equity may reduce overtime. However, staying in your current home also means retaining exposure to any increase in its value, which may be greater in dollar terms than a lower-value home or a property in a different area.

H2: Discover how much equity you could access without selling

The amount you may be able to access depends on factors including your age, property value and existing debt. Inviva's Home Equity Calculator can help you explore how much you could potentially borrow, while the Reverse Mortgage Calculator can illustrate how a loan balance and your remaining equity could change over time.

You can also get in touch to talk to one of Inviva's Lending Specialists about your circumstances and home equity release options.

Looking at both figures can help you compare the money available today with the potential longer-term impact on your home equity. As with any significant financial decision, consider the costs and longer-term implications before deciding what suits your circumstances.

Explore your home equity release options with Inviva.