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Is “Downsizing” Right for You?
The term “downsizing” has evolved from the traditional definition of buying a smaller home as you near or enter retirement. It has some new twists, turns and options.
Many families are balancing their pride of ownership with their lifestyle needs. They may want to have more cash available to travel or to participate in activities with their children, while saving for retirement. This is difficult to do when a large percentage of one's income is tied to debt obligations, like a mortgage or untouched in the form of home equity.
The thought of downsizing can evoke both negative and positive feelings — from the dread of cleaning out attics and closets and bidding farewell to neighbors to the delight of being freed from the burdens of never-ending home maintenance and big mortgages.
Depending on your life cycle and lifestyle, downsizing your current house may provide some financial, emotional, mental, and physical relief. The more you know, the better decision you'll be able to make as to what is best for you.
What Does “Downsizing” Mean to You?
Downsizing doesn't mean you want less space.
It means you want more efficient space. Often, this means main-level living. Maybe you don't need to worry about stairs today, but having a master suite on the first floor becomes increasingly necessary as you age.
Essential space means having enough to live comfortably, to host family and friends, but not so much that it is a burden to maintain or manage.
Downsizing Doesn't Mean You Pay Less.
Depending on where you move, your monthly payment could even be higher.
If you sell your four-bedroom, four-bathroom suburban home and move into a luxury living facility in a city center with concierge services and 24-hour security, you'll probably pay more on a monthly basis. However, you rid yourself of expenses and headaches related to home and garden maintenance, utilities, and other related large costs.
Downsizing Doesn't Necessarily Mean Buying.
Typically, the general rule is not to treat home ownership as an investment — it's better viewed as a living expenditure. That means it's important to look at the monthly net cost of housing.
Run the numbers. After your monthly payment, property taxes, maintenance and other expenses, how much are you really paying to own your home? Compare that to renting, which often also includes maintenance and additional amenities but does not include property tax.
Consult with your tax and investment advisor to consider investment value and appreciation. You may be better off investing the proceeds from the sale of your house in other securities instead of real estate.
Downsizing Is A Lifestyle Move.
As our society becomes more mobile, downsizing is affecting all age groups — from young families to retirees. There is limited statistical data on the number of younger people who choose to pare down early, but the financial reasoning is the same across age groups: sell and scale down to generate income and reduce expenses.
Downsizing is a decision that requires planning and discussing. You won't find answers to all your questions in one place. Start with a visit to our online Real Estate Loan Center for useful calculators to help determine your payments and “after-tax” net costs of owning vs. renting.
Current CEFCU rates can be found on our Real Estate Loan Center. Real estate loans are available only for residential properties in the state of California. Certain exceptions may apply for jumbo loans or property types. Property insurance is required. All loans subject to credit approval. Rates and terms are subject to change without notice. CEFCU is an Equal Housing Lender. NMLS #626590.