Thinking of downsizing your home? Consider these pros and cons first
Interest rate hikes and the rising cost of living have many homeowners seriously considering downsizing. “For long-term owners and those who find themselves with an empty nest or too much space for their present needs, now may be the opportune moment to scale back. But, those downsizing for a financial quick-fix should carefully consider the costs involved as smaller doesn’t always mean cheaper,” says Andrea Tucker, Director of MortgageMe.
Having a thorough understanding of the costs involved in the sale of a house in relation to the current value of the property is important in avoiding a major financial misstep. “In theory, downsizing should be kinder on your pocket thanks to lower maintenance costs and as well as rates, taxes, and electricity savings. In the short term at least, a move to another home comes with sizeable expenses, so it pays to do the sums before making a final decision,” notes Tucker.
The positives of going smaller
Fewer maintenance costs
Cheaper utility bills
More affordable homeowners insurance
Smaller bond repayments
A potential cash windfall. Assuming you’ve lived in your current home for some time and your property has increased in value, by purchasing a smaller home you’ll have equity leftover that you can spend or invest (our vote is for invest!) as you see fit.
Fewer interest payments. Buying a cheaper property using the proceeds of the sale of your larger home means significant interest payments over time.
The cons of downscaling
Less space. As the name suggests downsizing means less space and an adjustment in getting used to a new lifestyle.
The possibility of more rules. Moving from a freestanding home to an apartment under a sectional title may mean getting used to complex rules, body corporates, and paying common property maintenance fees.
Playing furniture tetris. Before you move consider your furniture. What fits in your current spacious lounge might be an impossible squeeze elsewhere. Is selling existing furniture your existing furniture and buying new part of the plan?
Costs for you as a seller. These include bond cancellation fees, compliance certificates, estate agent fees, outstanding repairs and maintenance costs, as well as advance payments on municipal rates and taxes which are payable prior to your conveyancing attorney lodging any transfer documents to a new owner.
“If you’re lucky enough to own a property that has appreciated in value, downsizing means you’ll be able to enjoy the many benefits of the equity freed up from the sale of your home. If you’re choosing to downsize to get out of a sticky financial situation, there may be more beneficial lifestyle choices to make before taking on the many costs associated with selling and moving,” advises Tucker.