Whether you’re living in a home that has too much space or you’re retiring to a 55+ community in Charlotte because that’s where you want to be, it may make financial sense to downsize.
But could you really live in a smaller home?
Should You Downsize to a Smaller Home?
Downsizing has its benefits—including less time, energy, and money going toward home maintenance. It has its downsides, too; you could end up spending more than you did in the home you owned.
Benefits of Downsizing Your Home
The numbers don’t lie. According to Boston College’s Center for Retirement Research, “downsizing from a $250,000 house to one that costs $150,000 could on average increase yearly income by $3,000 and reduce annual expenses by $3,250, saving the homeowner $6,250 a year.”
Many people find that it’s easier to keep up with a smaller home. If there are parts of your current house you’re just not using, you may find the house is a little excessive for your needs.
Downsides to Downsizing
The hidden costs of downsizing can become pretty significant.
Moving can be pretty costly. A move across town, when you include the Realtor’s® commission, could cost about 10 percent of your home’s selling price. (The breakdown looks like this: 5 percent for the Realtor’s commission, 1 percent for closing costs, 2 percent to move your belongings, and the remaining 2 percent to fix and furnish your new home.)
Another problem? You may not find something of comparable value in the right location. Many people choose to use the profit from their home sale toward the purchase of a new home—but even if you’re switching to something smaller, location can cause costs to skyrocket.
Should You Sell Your House and Start Renting?
Over time, a fixed-rate mortgage won’t cost more—but rent probably will. It’s not necessarily a good financial plan to transition from homeownership into renting because it’ll cost you more in the long run.
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