He calculates that someone moving from a $250,000 home to a $150,000 home would save $3,250 annually (assuming carrying costs of 3.25 percent of the house value) and earn an additional $3,000 in income (assuming a 4 percent return on the price difference minus 10 percent in moving costs).
In addition, it's better to downsize sooner rather than later. "It's a big pain to move, and people usually do it because they're under financial pressure," he said. "All the pain is today, however, and the benefits are tomorrow."
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The other option is a reverse mortgage. People who have spent decades paying off their mortgages may not like the idea, but a reverse mortgage can provide much-needed income. Sass recommends reverse mortgages over home equity loans, which retired borrowers may have trouble repaying down the road.
Long considered a last resort for financially strapped seniors, reverse mortgages allow homeowners to get a lump-sum payment upfront or a line of credit they can tap as needed. As long as homeowners can pay the taxes and maintenance costs of their home, they never have to leave. Borrowers repay the loan when they die or sell the house. Upfront fees are steep, but with interest rates so low, the deal is particularly good now.