Equity Release vs Downsize Calculator NZ

This calculator compares two ways for older New Zealanders to turn home equity into money to live on: releasing equity with a reverse mortgage while staying put, or downsizing to a cheaper home and pocketing the difference. Both unlock the wealth tied up in a house, which for many retirees is their largest asset, but they cost very differently. A reverse mortgage lets you stay in the home you love and borrow against it, with no repayments, but the interest is added to the loan and compounds year after year, so the debt grows steadily and eats into the equity left for you or your estate. Downsizing has a one-off cost, the agent commission, legal fees and moving expenses of selling and buying, but no ongoing interest, so over a long period it is usually far cheaper in dollar terms; the price is leaving your home and community. You enter the amount of equity you want to free, the reverse mortgage interest rate, the years you would hold it, and the transaction costs of downsizing, and the calculator shows the interest a reverse mortgage would accrue over that time against the one-off downsizing cost, and the difference. Use it to weigh cost against the value of staying put. This is a simplified comparison and general information, not advice.

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Equity to free

Reverse mortgage rate

Years held

Downsizing costs

Downsizing costs about $212,197 less to free the same equity

cost of freeing the equity each way

Reverse mortgage interest$252,197

Downsizing cost$40,000

Reverse mortgage interest compounds with no repayments; downsizing is a one-off cost but means moving. Simplified, excludes fees and price differences. General information only.

How it works

The reverse mortgage cost is the interest that accrues on the amount freed, compounding at the reverse mortgage rate over the years held, calculated as the amount times the compounding factor minus the amount. The downsizing cost is the one-off transaction cost you enter. The calculator compares the two to show which is cheaper for freeing the same equity.

Worked example

Freeing 200,000 dollars via a reverse mortgage at 8.5 percent for 10 years accrues about 252,196 dollars of interest. Downsizing to free the same amount costs about 40,000 dollars in transaction costs, so downsizing is around 212,196 dollars cheaper, though it means moving.

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Frequently asked questions

What are my options to free up home equity in retirement?

The two main options are a reverse mortgage, which lets you borrow against your home and stay in it with the interest compounding until you sell, or downsizing, selling and buying somewhere cheaper to release the difference as cash.

Which is cheaper?

Downsizing usually costs less in pure dollars, because its cost is one-off transaction costs, while a reverse mortgage accrues compounding interest for as long as you hold it. But downsizing means leaving your home and neighbourhood.

Why does the reverse mortgage cost grow so much?

Because you make no repayments, the interest is added to the loan and compounds, so the debt grows faster each year. Over ten or twenty years it can multiply, eating into the equity left for you or your estate.