Are you considering downsizing your house to save money? Welcome to the club!
Hello, my name is Emma and in 2015 I was exactly where you are now.
I won’t rehash our entire downsizing story (you can read it here if you like) but suffice to say we downsized so we would have more time for enjoying leisure together and more money for travel.
Downsizing to a smaller home can be a great way to free up cash for taking that dream vacation, pursuing a hobby, or even just working less, but how do you know if it’s the right choice for you?
For many people, knowing they can downsize their family home into something smaller and less expensive, gives them peace of mind.
How Downsizing Your House Can Save You Money (5 Ways)
There are so many benefits to small home living but perhaps the best of them all is the cost savings which compound over the long term.
Most people are attracted to a simpler life when they consider downsizing, and the side benefit of simplicity is a less-expensive life.
Below are five ways a smaller home can benefit your finances:
1. Realize the equity in your home
If you have significant home equity you’ve probably asked yourself ‘Should I downsize my home and pay off the mortgage?
For most of us, our home equity is abstract wealth. We can’t use it to buy groceries, but we sure do love knowing it’s there.
Downsizing your home is a smart way to realize the equity in your home without getting a reverse mortgage or home equity line of credit.
By selling a larger home and buying a smaller, cheaper one – the equity you’ve built up is suddenly available for life.
Retirement is a time to explore new hobbies, travel, and spend time with family. It’s also a time when you’re more likely to experience health issues.
Either scenario, increased leisure or illness, requires extra cash.
Being house-rich, i.e. having equity in your home, and cash-poor, when you are retired, can place a lot of extra pressure on your new life stage.
By selling your home and downsizing to a smaller home, you are able to realize your home equity and put it to good use.
2. Eliminate the mortgage
If you are heading into retirement with a home loan, downsizing your home could help you eliminate the mortgage payment.
Depending on how much equity you have, selling your home might net you enough to pay cash for a smaller place and wave goodbye to an ongoing mortgage payment forever.
3. Pay off debt
If you have significant debts outside of your home loan, downsizing your house to pay off debt might be the answer.
When weighing up if it’s worth it to downsize, consider the lump sum you could receive from selling a larger home, it might completely clear your debt.
Living debt-free is a wonderful feeling and eliminates a lot of financial pressure. If downsizing will get you there, it’s definitely worth considering.
4. Reduce maintenance bills and labor
Smaller homes require less maintenance which is important as you get older.
If you enjoy gardening but abhor clearing the gutters, you can downsize to a home with a small garden and still have the cash available to outsource the maintenance work.
5. Ensure bills stay lower
Whether you’re living on retirement funds, social security, or investment income, keeping costs as low as possible in retirement is important.
Even if you don’t have a mortgage, the costs of keeping a larger home can be hard to manage, especially on a fixed income.
By downsizing in retirement you are ensuring your costs stay low with lower property taxes, insurance premiums, and maintenance charges
A lot of people only consider the initial lower purchase price when deciding if downsizing is right for them, but the real savings come with lower ongoing costs extrapolated over a number of years.
Since we’ve lived in our small home, we’ve saved over $20,000 just from lower bills.
Don’t underestimate the importance of downsizing to save money. It’s a smart move for a lot of people – even well before retirement.
If you want to reduce your monthly mortgage payment and ongoing utility bills you should give downsizing some serious thought.