When it comes to your home and mortgage, upgrading to a larger house is not the only time that things can change. With so many of us spending extra time at home during the COVID-19 pandemic, it is a great opportunity to reevaluate our spaces and our needs – and the truth is, bigger isn’t always better!
Whatever the reason, downsizing is a great option when you no longer need a full-size home. Perhaps you want to swap your two-story family home for a rancher, or maybe a cute little apartment or townhouse! Just as there are many options for individuals looking to move on up or expanding families, there are just as many for those looking to scale back - and plenty of benefits too!
Benefits to Downsizing
Some of the initial benefits when it comes to downsizing your home include:
- Reduced maintenance requirements for a smaller lawn and square footage (less time doing chores means more time to spend on what you love)!
- Lessened environmental footprint with decreased energy and utility requirements!
- Increase monthly cash flow with lessened expenses due to decreased utilities or lower mortgage payments!
- Boost your retirement fund!
Downsizing and Your Mortgage
Any time when you are looking to sell your current home and move, whether you’re scaling down for decreased expenses and a more manageable home or moving to a larger place, there are some things to know surrounding your mortgage!
For those homeowners who are fortunate enough to now be mortgage-free and looking to scale down, you could be sitting on a gold mine of equity. In some cases, your mortgage may be portable which will make the transition smoother but you would need to check your mortgage agreement. Otherwise, it is ideal to wait until the term is up before making changes to your mortgage contract.
If you have to make changes during the existing mortgage cycle keep in mind that you may end up with penalty charges and will require requalification, including passing the stress test, to qualify for your new mortgage. The stress test determines whether a homebuyer can afford their principal and interest payments, should interest rates increase. It is based on the 5-year benchmark rate from Bank of Canada or the customer’s mortgage interest rate plus 2% - whichever is higher.
Costs of Downsizing
In preparation for your move, there are a few costs that you will encounter associated with selling your home and buying a new one (whether larger or smaller).
These fees include:
- Realtor commission fees, which range from 2.5 to 5% of the home selling price
- Closing costs and legal fees, which are 1 to 4% of the purchase price on the new home
- Miscellaneous costs such as moving expenses, upgrading appliances and/or buying new furniture
- If you are moving into a condominium or townhouse, there are potential strata fees to consider - even if you are mortgage free
What About a Reverse Mortgage?
A reverse mortgage is a loan secured against the value of your home. It is exclusively for homeowners aged 55 years and older and enables the homeowners to convert up to 55% of the home's value into tax-free cash! With a reverse mortgage, you maintain ownership of your home and can use the loan to cover costs or pay out debts. The loan would need to be repaid in the event that you choose to move and sell the current home.
Contact a Dominion Lending Centres Mortgage Professional!
If you are considering a move whether due to decreased space demands, too much maintenance or financial reasons, contact a Dominion Lending Centres Mortgage Professional today to discuss your options! They can help you evaluate your current mortgage, the market and walk you through any alternatives that may fit your needs. They can even meet virtually!