Time to Downsize?
A study by Edelman Berland shows 33% of homeowners who are thinking about selling their home, plan to scale down.
Financial guru Dave Ramsey explains 3 potential financial advantages to downsizing:
- A smaller home means less space, and less time, stress and money spent on upkeep.
- Assume you save $500 a month on your mortgage payment. In 30 years, you could have an additional $1–1.6 million in the bank to get through your golden years.
- Use the proceeds from selling your current home to pay cash for a smaller one. If you can’t pay cash, aim for a 15-year fixed rate mortgage and put at least 10–20% down on your new home. Apply the $500 you saved from downsizing to your new monthly payment. At 3% interest, you could pay off a $200,000 mortgage in less than 10.5 years, saving almost $16,000 in the process.
Realtor.com suggests asking yourself the following questions (their answers are in italics) before deciding if downsizing is the right move for you and your family.
Q: What kind of lifestyle do I want after I downsize?
A: “For some folks, it’s a matter of living a simpler life focused on family. Some might want to cross off travel destinations on their bucket lists. Some might want a low-maintenance community with high-end upgrades and social events. Decide what you want to achieve from your move first, and you’ll be able to better narrow down your housing options.”
Comments: Many homeowners are taking the profits from the sales of their current homes and splitting it in order to put down payments on smaller homes in their current locations, as well as on vacation/retirement homes where they plan to live when they retire. This allows them to lock in the home price and mortgage interest rate at today’s values which makes sense financially as both home prices and interest rates are projected to rise.
Q: Have I built up enough equity in my current home to make a profit?
A: “For most homeowners, the answer is yes. This is if they’ve held on to their properties long enough to have positive equity that will be sizable enough to put a large down payment on their next home.”
Comments: CoreLogic’s latest Equity Report revealed 78.9% of homeowners have greater than 20% equity. That equity could enable you to build the life you’ve always wanted!
Real Estate Bottom Line
If you are thinking about downsizing and would like to evaluate your options, let’s talk so I can answer your questions.