Having a foyer, formal dining room, or breakfast nook may be nice but if you rarely use these features, they'll end up hijacking extra space in your home and wallet. So, if you're thinking about putting money away for retirement, or are just tired of paying for more home than you use; selling your current Calgary home and downsizing to something newer probably makes more sense.
With the state of Calgary’s current economic climate, downsizing is the best decision you could make for your finances and future. Below are just a few of the many reasons why downsizing now makes great financial sense.
1. A New Home Now Means Less Housework
By reducing the size of your home, you can considerably cut your maintenance expenses. Heat, gas, electricity and even your mortgage payment itself are all areas of savings. If you quantify these savings on a monthly basis, you will quickly realize that a little initiative can go a long way and that the incremental savings add up!
2. Keep Your Hard-Earned Equity and Buy With a Reverse Mortgage
A reverse mortgage is a great option if you want to buy a smaller house without investing all the proceeds you earn after selling your old home. If you sell the old home for $500,000 and your goal is to downsize to a $350,000 condo or townhouse, you could put $200,000 down and take a $150,000 mortgage.
As a result, you save $300,000 to take care of homeowners insurance, property taxes, moving expenses, etc. and you haven't committed yourself to a hefty mortgage.
3. Take Advantage of Low-Interest Rates
Mortgage rates in Calgary are the lowest they've been in a long time so if you've been thinking about downsizing, now is the perfect time to take action. Not only are you saving money through obtaining a lower interest rate, by downsizing your home you're also savings on your monthly mortgage payments period! You can then take those savings to put towards your principle, paying off your mortgage even quicker than expected.
Lower interest rates are also likely to attract new homebuyers who'll want to take advantage of the current market, and your home can draw a couple of competing bids as long as it's priced correctly.
4. Financial Flexibility is Waiting for You
Another advantage of downsizing your home is that it frees up sufficient capital for diversifying your real estate portfolio. The best way to downsize is to trade in your mortgage for a new home. In wake of the lower/ more affordable interest rates, you can sell your home at a great price and use the proceeds to pay off your current mortgage with the remainder being used on a new home.
Since a mortgage will no longer hold you down, you can get the home of your choice if you use your proceeds as equity, meaning that you qualify for a short-term loan. Alternatively, you can put 20% down and use the remainder to pay off the subsequent instalments. That way, you'll save yourself a considerable amount of money every month.
5. Increase the Equity You Already Have
The idea of downsizing may not appeal to everyone, but it's a great way to build equity quickly. You'll likely be investing the equity from your current home and using it to pay off a significant portion of the next property you live in.
There is a valuable worksheet the Globe and Mail created to help you decide if downsizing now is worth it. Once you fill out your information, you'll see the cost savings and why selling your current Calgary home to downsize is a smart financial decision.
6. Leverage Your Home's Equity to Your Advantage
Once you downsize, you're able to take advantage of the total equity you've built up over time by leveraging your home for investment purposes. With a little money down, say 10%, you can qualify for funding for your next investment (with the bank undertaking as high as 90%). By leveraging you're able to invest with someone else’s capital, significantly increasing your returns.
Although you will incur interest charges when you borrow for investment purposes, these charges are tax-deductible. As you move into a higher tax bracket, you'll be privy to tax breaks that increase your end savings.
Whether your reason to downsize is triggered by your lifestyle, financial goals or both, there has never been a better time to downsize in Calgary.