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Downsizing your home can increase your cashflow in retirement, pay off your home loan debt and help you live a low-maintenance lifestyle. But only if you do it the right way.
You may be able to achieve your downsizing goals without a mortgage. If you’ve built up enough equity in your family home, you could get enough to buy a smaller home outright. If this is the case, you won’t have to worry about financing. But if you do need to source a home loan, your situation could get slightly trickier.
While banks are prohibited from discriminating based on age, they can decline you if they worried you can’t repay the debt. If you’re retired, or about to retire, you’ll need to have a steady source of income.
Signing a contract for a new home while the sale of your old one is pending is a risky gamble. You could find yourself facing trouble selling — or selling for far less than you’d anticipated.
In the event you do buy a new home before selling your current home, you may need to access what’s known as a bridge loan. Bridge loans are short-term home loans that help cover periods of cash flow shortage. It’s a temporary solution while your home is on the market.
However, waiting to buy until you’ve sold your old home can save you the stress and uncertainty of having to source interim financing. If you have sufficient equity in your old home, being patient is likely your best bet.
If you’ve owned your family home for some time, it’s likely you’ve built up quite a bit of equity and seen some strong capital gains. If you have the luxury of patience, watching the market can ensure you actually realize those capital gains.
Take a look at recent sales in your neighborhood to see whether you’re in an area that’s in high buyer demand. You’ll also want to pay attention to recent comparable sales to see what price other homes in the area have been fetching.
In monitoring the market, try to take a measured approach. Don’t sell in a panic if prices start to head south. Likewise, don’t sit on your hands trying to gamble on either the top or bottom of the market if you feel you can get a good price for your house now.
This might be the most difficult bit of advice to actually put into action. Selling the family home and downsizing is a monumental life event and there’s a lot of emotion involved. As much as you can, you’ll have to remain practical when making your decisions.
Decluttering can be the most emotional experience you face when downsizing. Buying a smaller home means you’ll have to divest yourself of many of the possessions you’ve spent your adult life accruing. Many of them will have sentimental value. To successfully downsize, you’ll have to ruthlessly prioritize which items to keep and which to get rid of.
It can be quite jarring to move from a large family home into a smaller property better suited to retirement. You can make the move a bit less jarring and keep yourself from buyer’s remorse if you put some thought into your likely future needs.
Are you likely to have family members moving back in with you in the future? Are you able to keep up with the maintenance required on your new property? Does the location of your new property meet your future social needs? Do you have easy access to amenities? Is it accessible — both for your current needs and how they may change as you age?
If you’re looking to downsize, you may well be moving into the property in which you’ll live for the rest of your life. It’s likely your needs and priorities will change in the years ahead. It’s worth putting some thought now into whether or not your new property will meet those needs.
Downsizing can help you gain both financial and physical independence, particularly if you choose a home that will continue to meet your needs in the future. In an ideal situation, you won’t need a mortgage. But if that’s not the case, compare mortgage providers to find one that can help you downsize affordably.
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