It seems like just yesterday your kids were fighting over whose turn it was to use the bathroom but your youngest – the last one still living at home – just found an apartment near her job in the city and is wondering if you have any furniture to hand down.
The realization that your downsizing journey has begun may leave you in tears or doing a happy dance. After all, there are definite pluses to living smaller, including less maintenance and upkeep, giving you more time to do the things you love.
IS IT TIME TO DOWNSIZE?
Whether you’re empty nesters, are retiring or want an eco-friendlier or lower-maintenance lifestyle, a desire to live simpler is a common reason to downsize. If your adult children have moved out of the area, you may want to live closer to them and your grandchildren.
Perhaps you’d like to live in a walkable neighbourhood that offers convenient access to culture, restaurants and other amenities. Or perhaps unexpected life events, such as a divorce or unemployment, are forcing you to find a smaller home for financial reasons. Regardless of your motivation, there are things you should consider, such as:
Does size matter to me? Many of us have been conditioned to believe bigger is better. Will moving to a smaller place feel like a move backward instead of forward and can you cope with that?
How will other life events affect living in a smaller space? Consider a variety of scenarios. Is there a chance an aging parent may one day need to live with you? Is there a chance adult children might want to move back home in the near future and would you feel badly if you don’t have space for them?
How much will get from the sale of your current house? Many people wanting to downsize hope to turn surplus home equity into cash to lower their new mortgage balance or for other priorities, such as saving for retirement. But depending on the value of your current home, where you want to relocate and the must-haves you want in a new place, downsizing may not necessarily leave you with money in your pocket. At the same time, you may face unexpected costs, such as investing in smaller furniture. If you move into a condo, you’ll need to budget for maintenance fees. On the flip side, lower utility and other bills may help offset additional expenses over time.
ARE YOU READY TO MOVE TO A LARGER HOUSE?
While some people are thinking about downsizing, you’re contemplating a move to a larger house. As your family is growing, your starter house is feeling cramped and you’d also like to be in a family-friendlier neighbourhood close to schools and parks. Or perhaps your household finances have improved and you want to upgrade to a larger house or one with a better location or better amenities. Ask yourself these questions:
Should I move or improve? Could cutting the clutter create more usable space? Would renovations remedy your home’s current flaws and if so, how much would they cost and how long would they take to complete? Compare the inconvenience and cost of those options to buying a new home and decide which makes sense for you.
Can I afford it? A bigger house or better neighbourhood typically costs more money. You may be comfortable with your current mortgage payment but can you handle a larger one? Don’t forget, a bigger home means increased maintenance and upkeep, as well as larger tax, utility, insurance and other bills.
Just as you did when you purchased your starter home, create a monthly budget. Consider test driving the additional expenses associated with a larger house by setting aside in a separate savings account each month the difference between your current house bills and what your new bills will be. If your current monthly housing payment is $1,500, for instance, and the new housing costs will be $2,300, set aside $800.
You may quickly discover it’s just too much of a stretch. Perhaps you’ll learn you’ll need to give up discretionary expenses, such as vacations or going out for dinner. Are you OK with that or will you resent it over time? Worst-case scenario, you can use those savings to top up your down payment on a new place.
Do I understand new mortgage rules? Under new rules that came into effect at the beginning of 2018, even homebuyers who don’t require mortgage insurance because they have a 20% down payment must prove they can make meet their commitment if interest rates rise above the five-year benchmark rate published by the Bank of Canada
or 2% higher than their contracted mortgage rate, whichever is higher.
What are my financing options? Are you currently mortgage-free? If you have a mortgage, are you in the middle of or at the end of your term? Is it portable? Are you eligible for a bridge loan? This is needed when you buy before your house is sold, or if there’s a big gap between when you buy and take possession.
What additional expenses will a move entail? Don’t forget to set aside money to cover closing costs, including land transfer tax and legal fees. You’ll also need to factor in moving expenses and whether you need to invest in new furniture and equipment to maintain your new property, such as a lawnmower or snow blower.
FINDING A NEW PLACE RIGHT FOR YOU
Whether you’re downsizing or moving to a larger place, it’s important to look for a home that checks off your needs, including physical, emotional and financial. If you’re going to make the effort to move, you should do it right. That includes working with a realtor who’s knowledgeable about the current real estate market and neighborhoods of interest to you. I’m happy to help you understand all of your options and will work diligently with you to find the new home perfect for you as you begin the next chapter of your lives!