$250K Reverse Mortgage vs Downsizing a $500K Home: $721K Net Worth Gap After 15 Years

Staying put isn’t automatically the cheaper choice

We ran a $500K home, a modest $250K HECM draw, and a 15-year horizon through the calculator. The reverse mortgage path — origination fee $6,000, initial MIP $10,000, loan compounding at 6.5% interest plus 0.5% annual MIP — leaves about $89,226 of home equity after 15 years. The downsizing path — selling at 7% closing costs, buying a $300K replacement home, and investing the $165,000 left over at 5% — grows to roughly $810,413 in total net worth. That’s a $721,188 gap in favor of downsizing, driven almost entirely by compounding loan interest eating into home equity versus compounding investment returns growing cash.

How the math works

HECM origination fee: min($6,000, max($2,500, 2% × min(homeValue, $200,000) + 1% × max(0, homeValue − $200,000))). Initial MIP is 2% of appraised home value at closing. The loan balance compounds annually at your interest rate plus the ongoing MIP rate (0.5% is the FHA default). Home value and the new home’s value both compound at your chosen appreciation rate. Because a HECM is non-recourse, remaining equity is floored at $0 — you never owe more than the home is worth.

What this tool doesn’t model: monthly (vs. annual) compounding, HECM servicing fees, the 2025 HECM lending limit of $1,209,750, and moving/relocation costs on the downsizing side beyond the flat selling-cost percentage.

Math runs locally. Inputs never leave your browser. Source on github.

Where this calculator doesn’t apply

• You have strong emotional or medical reasons to stay in your current home. Aging in place near familiar doctors, community, and accessibility modifications already made to the home has real value this net-worth comparison doesn’t capture.
• You want to leave the home to heirs. A reverse mortgage reduces the equity your estate inherits (heirs must repay the loan or sell to satisfy it); downsizing converts equity into cash and a smaller home, both fully part of the estate.
• You only need a small, short-term cash infusion. A HELOC or cash-out refinance may carry lower ongoing costs than a HECM’s origination fee and MIP structure for a modest, short-term need — compare both before committing to either.
• You can’t or won’t invest the downsizing proceeds. This model assumes 100% of leftover cash gets invested at your chosen return rate — if you’d spend most of it instead, the downsizing net-worth advantage shown here won’t materialize.

What to actually do with this number

1. Run the calculator with your actual home value, target loan draw, and a realistic new-home price if you’re considering downsizing.
2. Complete HUD-required HECM counseling before proceeding with a reverse mortgage — it’s mandatory and free.
3. Compare a smaller HECM draw (just enough for the actual need) against the full amount — remaining equity scales inversely with how much you draw.
4. If downsizing wins on net worth, weigh it against the non-financial cost of moving before deciding.
5. Revisit the comparison if your health, family situation, or the housing market changes meaningfully.