Homeowners: Is Downsizing Really Worth It?
All told, large homes can be expensive and unnecessary. For many homeowners — especially those belonging to the baby boomer generation, whose children have moved out to go to college or start their own families — a large home can be too much of a burden. With saving for retirement posing a greater challenge than it has in many decades, swapping living spaces could provide the extra funds. It is a possibility that many Americans are considering; according to a recent survey by the Demand Institute, more than 40 percent of Americans ages 50 to 64 plan to move in the next five years.
Regardless of the reason for downsizing, the prevailing assumption is that moving into a smaller home will reduce a homeowner’s cost of living. But in some cases they could end up paying more.
In an ideal situation, a homeowner would sell their original home, with a large square footage and perhaps an unnecessarily big lot, and purchase a smaller home that would bring thousands of dollars of savings in annual property taxes as well as in heating and cooling costs. A smaller home also typically means a less expensive home, which will cut down the cost of financing the new property. If the downsizing is great enough, mortgage payments could be eliminated entirely.
However, there are important costs to consider first. First, and most importantly, if the housing market where the original home was bought was hit hard by the housing crisis, the property could be worth significantly less than when it was first purchased. The house can still be sold and the proceeds used to buy a cheaper property, but those savings would be largely offset by the loss the homeowner would take on the original purchase. Furthermore, while mortgage costs could decline by switching to a cheaper home and refinancing, the various closing costs and fees associated with securing new mortgage terms could also lower or cancel savings.
Other costs can add up as well. Although it may seem like a negligible expense compared to the others, homeowners must still factor in the cost of moving when calculating their overall spending. Movers who relocate to a new home within 20 miles of their previous home will pay comparable prices for utilities, food, and similar necessities, and a 2009 Boston College study found that a large majority of older Americans typically stay within that radius. Finally, moving into a smaller house can result in additional lifestyle costs. Moving out of a pricey city and into a small town could be less expensive, but it is also more isolating and requires more travel to see friends or to shop.
Renting can be one possible alternative to a costly downsizing; often, it can be cheaper than buying a new home, especially when the ever-rising costs of taxes, insurance, repairs and maintenance, plus mortgage payments, are considered.
Follow Meghan on Twitter @MFoley_WSCS
Don’t Miss: 8 Worst States for the Unemployed.