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Should you downsize?

signs a seller will probably negotiate: packing boxes and a vacant house

Downsizing is a tough decision. It’s a decision fraught with emotion, cloudy with logical and practical reasons and mired with a host of memories and attachments. It’s hard to let go of a space where you’ve nursed pets, raised a family, decorated and added decor and spent a lifetime. The big question is should you downsize your home? And by how much?

To help you strategize and process here are some frequently asked questions and answers about downsizing.  

#1: Why do people downsize?

Portrait of happy senior couple packing cardboard boxes while mo

There are a variety of reasons to downsize your home. Some of the major reasons include: 

  1. Empty nest: When the children have graduated and moved out, a big house can become a burden. The garden needs tending, the gutters need cleaning, and the interior of the house takes hours to complete a basic clean. At this point in life, many couples and single-residents realize that the empty-nest will never be full again — and this prompts the decision to purchase a smaller residence that offers enough space to live and relax, but not so much that it becomes a burden on the finances when it comes to upkeep. 
  2. Physical health: As we age, we are forced to contend with unwelcome changes in our physical health. Downsizing allows those who must tackle physical ailments to invest in a property that’s not just easier to maintain, but easier to move around in. Whether you simply want a smaller place that’s easier to clean or need a property with fewer stairs, downsizing offers you a chance to get a property more suitable to your current lifestyle needs.  
  3. Adjusted financial goals: Life loves to throw curveballs and your finances are not immune to the unexpected. Whether it’s a later-in-life divorce, or the death of a spouse, or even retirement, quite often what prompts the downsize decision is the need or desire to free up some finances for this later life stage. By downsizing, you can often make decisions to free up equity in your former family home that can be used for retirement or other expenditures.
  4. Proximity to amenities: While a double-car garage and a large backyard are great, quite often these attributes are often attached to homes built in residential communities further away from amenities. As we age, however, the big backyard is no longer as important as our ability to walk to the community centre, or pop into the local coffee shop or pub. Downsizing lets you select a property that’s closer in proximity to the amenities that matter to you — and this can have a significant impact on the quality of your daily life. 

#2: Are there other options other than downsizing?

How to find a roommate   roommate needed sign on door.

To decide whether or not to downsize, you must first realize what downsizing means: It means selling your family home to buy a smaller, less expensive property. Typically, this decision is prompted for financial reasons — such as a need to supplement your retirement income — but there are other factors involved. For that reason, it’s important to understand that there are other options.  

  • Get a roommate

A housemate or renter can be an ideal solution; not only does a renter help alleviate the financial pressure of keeping a larger home, but it can help with potential isolation and loneliness that can happen as we age. 

To make this arrangement work, however, you’ll need to be honest and upfront with the potential tenant. Discuss your ideal living arrangements and your expectations and make sure the person checks out (call references, talk to employers, make sure they are reputable, courteous and honest). Finally, make sure your new tenant understands what you expect. Do they need to take the garbage to the curb every week? Make sure they know this. Are they responsible for cleaning out the gutters? Make sure this is in writing and part of the lease contract. 

  • Rent rooms to tourists

If having a housemate in your space full-time doesn’t appeal to you, consider renting out rooms to tourists through the use of short-term rental sites. 

According to statistics, Canada hosted almost 25 million tourists in 2017 (the latest data available); these visitors spent almost CDN$23-billion during their stay and a portion of these spent dollars could be spent on paying to rent out that extra bed, room or suite in your house. 

Just be sure you understand how to advertise, market and report your short-term rental income and don’t forget to make sure you have adequate insurance coverage, just in case that short-term renter turns into a nightmare temporary resident. 

  • Renegotiate your mortgage terms

If your reason for downsizing is purely due to financial hardships, contact your lender and explain your situation. Lenders employ specialists who can help you explore options. The vast majority of lenders will work hard to keep an engaged, conscientious borrower, who wants to continue making payments than one who defaults and doesn’t seem to care. 

  • Refinance to get a better mortgage rate

If more favourable finance rates are available, consider refinancing your home. While you will be required to pay fees to process this paperwork and penalties for breaking the original contract, you could still end up saving money and lowering your monthly payment, which will help you pay all our living costs each month. 

Another option is to increase the amortization length of your mortgage. This means adding months and years to how long you are responsible for paying the mortgage debt back to your lender. 

If you are having short-term financial difficulties, an easy solution is to increase the length of your loan (known as the amortization period). In layman’s terms, this solution allows you to increase the number of payments to decrease the monthly amount. Let’s weigh both the pros and cons of this option.

On the plus side, you will drop that payment in just a few weeks. It buys you time to take control of your financial situation; later, you can make additional payments to pay this down.

However, there is a huge negative to this solution. If you are unable to stabilize again financially, you will pay more interest for several extra years.

How to make that big downsizing decision?

So, the question remains. Do you stay, or do you downsize?

Armed with options, consider the pros and cons of each solution and how each one will solve your particular dilemma. Then decide what you can live with and what you cannot live without. Quite soon, you will see that one or more of the options will solve your unique dilemma — the reason for considering whether or not to downsize. For instance, if you value your independence and don’t want to leave your neighbourhood, then taking in a student lodger may be the best option. However, if you value your privacy and don’t like the idea of people in your space, a move to smaller, more manageable accommodation may be your best bet. 

Image of Romana King

Romana King

Romana King is an award-winning personal finance writer, real estate expert and the current Director of Content at Zolo. Romana has contributed to business and lifestyle publications including, Toronto Sun, Maclean’s, MoneySense, Globe & Mail Custom Content Team, and The Toronto Star. Among her achievements, Romana won silver for her annual Where to Buy Now real estate package in the 2019 Canadian Online Publishing Awards. In 2015, she won a SABEW Business Journalism award. When she was editor of CI Top Broker, Romana helped guide her team to obtain its first KRW Business Journalism nomination, and in 2011, she was part of a small team that helped MoneySense win Magazine of the Year at the 34th annual National Magazine Awards.