Downsizing Your Home
Moving to a larger house is not the only time that things can change with your home and mortgage. Sometimes there comes a point when owning a home becomes a little too much to handle; or maybe you’re an empty-nester and no longer need three extra bedrooms. Whatever the reason, downsizing is a great option when you no longer need a full size home. Perhaps you want to swap your two-story family home for a rancher, or maybe a cute little apartment or townhouse! Just as there are many options for individuals expanding families, there are just as many options for people wanting to scale down.
For homeowners who are fortunate enough to now be mortgage-free and looking to scale down, you could be sitting on a gold mine!
If you do still owe on your current mortgage, it is important to remember that downsizing during your current mortgage cycle, will be breaking the mortgage. This means, you will have to go through the entire qualification process again – including passing the stress test. The stress test is now required for all mortgages. Its purpose is to determine whether a homebuyer can afford their principal and interest payments, should interest rates increase. It is based on the 5-year benchmark rate from Bank of Canada or the customer’s mortgage interest rate plus 2% – whichever is higher.
Regardless of your current situation, there are some costs that go with selling your existing home and moving to something smaller or more affordable.
Some of the costs associated to downsizing are:
- Realtor commission fees, which range from 2.5 to 5 percent of the home selling price
- Closing costs and legal fees, which are 1 to 4% of the purchase price on the new home
- Miscellaneous costs such as moving expenses, upgrading appliances and/or buying new furniture
- If you are moving into a condominium or townhouse, there are strata fees to consider
Why Not Consider a Reverse Mortgage?
Most individuals looking to scale down are looking to do so for retirement or because they are now empty-nesters. However, if you are looking to downsize simply due to being unable to manage your mortgage or maintenance costs, there is an option called a “Reverse Mortgage”.
A reverse mortgage is a loan secured against the value of your home. It is exclusively for homeowners aged 55 years and older and enables the homeowners to convert up to 55% of the home’s value into tax-free cash!
With a reverse mortgage, you maintain ownership of your home and can use the loan to cover costs or pay out debts. The loan would need to be repaid in the event that you choose to move and sell the current home.
If you are looking to downsize your home, a Dominion Lending Centres mortgage professional can help! Contact one of our many experts today to help make your next move a successful one.