High Mortgage Rates Are Holding My Retirement Hostage: Can I Still Downsize and Retire?

Portrait of an African-American mature man with his arms crossed, looking at the camera on his outdoor deck. — (Image credit: Getty Images)

There’s a reason many people choose to downsize their homes once they retire. Not only can downsizing mean shedding a lot of the work associated with a larger home, but it can also mean slashing your housing expenses significantly. Plus, downsizing allows you to tap your home equity without needing to go out and borrow again.

As of 2022, U.S. homeowners ages 65 and over had a median $250,000 in home equity, according to the Joint Center for Housing Studies of Harvard University. If you’re sitting on a $600,000 home and downsize into a $450,000 home, you may be able to pull out some of that equity along the way.

In fact, there are many people who bank on being able to downsize in order to comfortably move forward with retirement. But while that strategy normally works just fine, today’s housing market conditions are making it more challenging — namely due to elevated mortgage rates.

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As of mid-July 2025, the average 30-year mortgage rate is 6.72%. At this time three years ago, the average 30-year mortgage rate was more than a full percentage point lower. And six years ago, the average 30-year loan rate was nearly three points lower.

If higher mortgage rates are getting in the way of your retirement plans, you’re not alone. But that doesn’t mean downsizing is out of the question.

Run the numbers before assuming that retirement is off the table

The problem with downsizing right now is that if you’re sitting on a mortgage in the 3% range — either because you signed your loan when rates were low or you refinanced a handful of years ago when rates plunged — you may be looking at swapping that loan for nearly a 7% interest rate.

Put another way, a lot of your savings may be lost to a much higher borrowing cost. But that doesn’t mean downsizing won’t make financial sense, says Aaron Cirksena, founder and CEO at MDRN Capital.

“I’ve had clients in this exact situation,” Cirksena explains. “The first thing we do is run the full cost picture — not just mortgage payments, but taxes, insurance, maintenance, HOA fees. Sometimes staying in the current home and making it more retirement-friendly ends up being the more cost-effective option.”

You may, for example, decide to stay where you are for the time being but shed other expenses to make your monthly costs more affordable. That could mean downsizing from a two-car household to a single shared vehicle, or taking steps to reduce other spending.

Otherwise, Cirksena says, downsizing and renting for a while may be an option.

“I know it feels like a step backward, but sometimes renting short-term gives you some breathing room while markets shift around,” he says. “You can invest the equity you’ve unlocked, stay liquid, and keep your options open, which is exactly what this kind of transition should be about.”

Of course, if you have enough equity in your current home and are eyeing a move to an area with significantly lower housing costs, buying your next home in cash may be a viable option.

“I’ve seen people sell high, buy lower in another state, and eliminate the mortgage altogether,” Cirksena says.

If you go this route, though, you’ll need to make sure you’re not tying up too much cash in your next home. You need cash reserves on hand for emergency expenses and to ride out market declines when tapping your portfolio isn’t prudent.

Don't automatically write off a new mortgage either

Cirksena understands why the typical retiree may be hesitant to take out a mortgage today.

“Trading a 3% mortgage for something near 7% feels like shooting yourself in the foot, even if it’s a smaller place,” he says.

But Greg King, senior vice president and wealth adviser at Johnson Financial Group, says higher mortgage rates don’t necessarily need to scare you off if the numbers work overall.

“I wouldn’t be afraid to explore a 30-year mortgage even though that might end in your 90s and rates being at 20-year highs,” he says. If you’re buying a significantly less expensive home, you might still end up with considerably lower monthly payments.

Additionally, your peripheral costs, such as property taxes, insurance, and maintenance, may decline sufficiently that it’s worth considering downsizing, even if the mortgage-related savings are relatively minimal. And if you’re moving to a smaller home in an area that’s cheaper overall, you may find that you’re able to save money on non-housing expenses as well.

However, if you’re going to take out a new mortgage, King cautions that you have to go into it assuming rates will stay the same for the rest of your retirement — or at least not change for the better.

“You need to be more defensive in retirement and assume that rate never changes, bonus if it does,” he says.

Maurie Backman is a freelance contributor to Kiplinger. She has over a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. She has written for USA Today, U.S. News & World Report, and Bankrate. She studied creative writing and finance at Binghamton University and merged the two disciplines to help empower consumers to make smart financial planning decisions.