The cost of downsizing your home

Here's a way to extract some equity without any income verification

I have recently had a few discussions with clients with regards to downsizing their home.

The idea is that they sell their home that is worth, let’s say, $450,000, and buy a home that is worth, let’s say, $300,000. This leaves them with $150,000 to invest to generate income to supplement their current retirement income.

Now this might sound like a smart strategy from the outset, but I would like to give you a few things to consider that might have you thinking differently.

I would also like to offer an alternative to downsizing your home.

I preface my comments by saying that there are situations where downsizing your home is the only option. Examples of this might be failing health and the inability to maintain the home and/or to take care of oneself. In situations like this clearly it makes sense. But here are some things to think about if you still have your health and you actually enjoy the home that you’re currently living in.

The cost — there are many costs involved in selling a home. You have the initial cost of updating, painting and generally making your home presentable in preparation for the sale. You have to pay removal costs to get your possessions from home A to home B. You may have to pay property transfer tax on your new property There could also be some legal fees on the new home purchase. All in all you could be in for a bill of anything between $10,000 and $20,000.

The pain — you might have to have a garage sale to get rid of some stuff so that you may fit into your new home. You have to inform anyone who writes you or sends you bills that your address has changed. Research has shown that moving home is one of the more stressful activities for seniors.

All you are really doing by downsizing your home is accessing equity in your existing home. Why not access your equity in your home without moving, it is far simpler and you don’t have the headaches and upheavals of moving home. Many institutions in Canada offer a product called a home equity line of credit or a HELOC.

A HELOC offers you the ability to extract some equity out of your home without any income verification and most importantly without moving. Because the loan is secured by the value of the property, the interest rate is generally a lot less than an unsecured loan. I have come across many situations where people have endured the pain of moving because they did not know they had other options.

 

Stuart Kirk, CIM, is a Retirement Planning Specialist with Precision Wealth Management Ltd. The opinions expressed are those of the author and may not necessarily reflect those of Precision Wealth Management Ltd. For comments or questions Stuart can be reached at stuart@precisionwealth.ca or 250-954-0247.