Thinking of downsizing your home? The process of selling your current, larger home in favour of something smaller is a popular move among Canadians approaching or living in retirement, those who find themselves with an empty nest, or homeowners who want to simplify their lifestyle.
In many cases, downsizing can also be a good way to reduce the costs of home ownership. But there are some factors to consider if such a move might be in your future. Understanding the full scope of downsizing can help you make home ownership decisions that are right for you.
There are several benefits to downsizing:
- To fund retirement. If you have lived in your home for many years – or your home has gone up in value since you bought it – the sale of your home will give you have cash on hand for your retirement if you downsize to a more inexpensive home.
- To reduce or eliminate home maintenance. A smaller home will mean less cleaning and (likely) less maintenance. If you move to a condo, upkeep efforts can be significantly reduced.
- To “rightsize” your space. Have the kids moved out of the family home? Do you have more space than you really need? Downsizing might just feel like the right move if there are fewer people living under one roof.
- To simplify things. Want a worry-free home? The convenience of owning a condo – where you can simply lock the door on your way out of town and have on-site security and maintenance professionals – can seriously simplify your daily life.
Things to consider before downsizing
If you have lived in your home for many years, you may find it difficult to leave your space, the memories you’ve made there and parting with the things you have accumulated over the years. Many homeowners find they can’t pare down their belongings enough and wind up renting a storage unit. Renting a storage unit can add a hefty monthly cost to your budget and negate some of the cost savings benefits that make the move attractive in the first place!
Moving also comes with a financial cost that can’t be overlooked or underestimated. Although the move is to a smaller home, there are still several expenses associated with downsizing – costs that should be closely examined to ensure the move is in fact a financially smart decision.
The costs of downsizing
As you consider downsizing, be sure to factor in the costs of your move. Here are the main costs to be aware of:
|Mortgage Prepayment Fees
|Movers, a moving truck, packing supplies, and utility hook-ups.
|If downsizing means you can pay off your mortgage in full, there may be costs associated with breaking your mortgage early.
|Land Transfer Tax
|Legal Fees and Disbursements
|This tax is calculated as a percentage of the purchase price of your home. All provinces have a Land Transfer Tax except Alberta and Saskatchewan, and the amount varies across the country. Some cities, such as Toronto, also have a municipal Land Transfer Tax.
|These are fees that cover the preparation and filing of the official documents required for the purchase of your home. You can expect to pay approximately $500 plus GST/HST in legal fees.
You can see a more complete list of closing costs in our post: The Bottom Line on Closing Costs.
Downsizing with a current mortgage
If you have a mortgage on your home today – and you’ll need a mortgage for your next home – you may be able to port your mortgage. That is, you could take your mortgage with you when you move.
MCAP offers the opportunity to port your mortgage, including the option for a “decreased port.” In this case, if you’re if you’re scaling back and your new home doesn’t need as large a mortgage, you may be able to port upon qualification.
For more information about porting your mortgage, our team at MCAP can help.
Bottom line on downsizing
Downsizing can be a great move – for your finances, your lifestyle, and your mental health. To ensure the move works for you – and to avoid unpleasant surprises – here are some final tips to keep in mind:
|Know how much your current home is worth. To fully understand whether downsizing will be a financially viable move for you, you’ll need to know the current value of your home. There are several online calculators that can help you determine your home’s value. It is also a good idea to speak with a professional appraiser and/or real estate agents with experience in your market to get an accurate value.
|Have a clear understanding of moving costs. Then, set that money aside so that you know how much money you’re working with as you search for your next home.
|Know the value of real estate in the area you’re looking. Be sure to look at current values as the real estate market in Canada changes quickly!
|Have a plan for your things. Will you be able to purge? How much of your stuff will fit into a new, smaller space? Be sure you can downsize your belongings as well as your space before you make the move.
If you are ready to downsize and want to explore your MCAP mortgage options, be sure to contact us!