As couples age, they often consider “downsizing,” selling a larger home they perhaps lived in for years for something smaller. In the past, this often provided a financial benefit, since they could sell their larger home for a lot more than the cost of a smaller place.
However, the Wall Street Journal recently reported that downsizing has lost some of its financial advantages in the last few years. Modest homes can cost nearly $300,000 or more in some housing markets.
If you still have a low interest rate mortgage on your current home you will probably have to pay 7% on your smaller home – unless you have enough equity to pay cash.
The retirement and lifestyle experts we consulted say the financial aspects of downsizing are extremely important, but there are other considerations. Lawrence Sprung author of Financial Planning Made Personal and founder of Mitlin Financial, says the move should also improve your quality of life.
“Will this move allow you to ease your mind, allowing you not to worry about caring for a larger home’s maintenance? Perhaps you are looking to allow for better mobility in your home, so you do not need to navigate stairs,” he told ConsumerAffairs.
As people age, they sometimes sell their two-story colonial home for a ranch style, with everything on one level.
Terry Turner, a financial wellness facilitator and writer for RetireGuide.com, says there are also emotional considerations when downsizing. After all, you may be moving out of the home where you raised your children.
“Another important factor to consider is what kind of sacrifices you're willing to make when downsizing,” Turner said. “Moving to a smaller space means you may have to make sacrifices in certain areas of your life, so it's necessary to consider any emotional ties you have to your current home, the area you live in and the items in your home.
If you have lived in a home for two or three decades you no doubt have accumulated a lot of “things” that are unlikely to fit into a smaller space. How painful will it be to get rid of them?
Joe Camberato, CEO of NationalBusinessCapital.com, a fintech lending platform, says all of these factors are important but downsizing usually comes back to a financial decision.
“Look beyond just selling a home and consider the broader financial picture,” he advises. “With the current real estate market conditions, home prices and interest rates are high, which may impact the financial aspects of downsizing. Typically, downsizing involves moving from a larger home to a smaller one, but the cost of the smaller home may actually exceed that of the original, depending on when you made your initial purchase.”
Other financial considerations
Other financial considerations include the ongoing costs of maintaining a smaller home. If it’s new construction, maintenance costs may be significantly less than the older home you’re living in. Buying an older small home may saddle you with these same maintenance costs.
For example, when comparing your current home with one you might buy, consider the age of roofs and HVAC systems that could be nearing the end of their life cycles.
Do people have regrets after downsizing? Some probably do but Sprung says he is not aware of any data that addresses that topic but says it is an important question that should be honestly considered.
“I can share anecdotally that these are conversations we have with the families we serve regularly to ensure they are making the downsizing decision for the right reasons, goals and are prepared both financially and mentally as well as socially for the change,” he said.
"Research shows that 51% of retirees downsize, however, there is no data to show who was happy with the decision and who has sellers’ remorse," Kristina Keck, who heads up Woodruff Sawyer’s Retirement practice, told us. "I have read and heard about many retirees who regret their decision to downsize. They may not realize how much they will miss the larger lot and being further away from friends and family."