Many Canadians consider downsizing during their retirement years, especially once their children have moved out. It often seems like a practical decision to relocate to a smaller home or a more affordable area, taking advantage of the price difference. For many retirees, the proceeds from selling their home can significantly enhance their lifestyle and financial well-being.
However, there are downsides to downsizing that you should consider before calling your realtor.
Downsizing in Canada: A Cost Analysis
One of the biggest drawbacks of downsizing is the cost of moving. To illustrate this, let’s analyze a typical downsizing scenario: selling a home in Toronto for $1,000,000 and buying a condo for $700,000. This would theoretically free up $300,000 in equity. However, according to Ratehub, you’ll need a nest egg of around $450,000 to retire comfortably in Canada. So, how much of that equity will actually contribute to your retirement savings? Here’s a breakdown of estimated costs associated with downsizing:
| Fees | Downsizing | CHIP Reverse Mortgage |
|---|---|---|
| Real estate fees (average 5% selling price) | $50,000 | N/A |
| Legal fees | $1,200 – $2,400 | $300 – $600 |
| Land transfer tax (varies by province) | $8,975 | N/A |
| Moving expenses (packing, service, etc.) | $3,000 – $6,500 | N/A |
| Furnishing and upgrades | $8,000 – $25,000 | N/A |
| Home appraisal | $500 | $300 – $600 |
| Closing fee | $500 – $1,500 | $1,795 – $2,995 |
| Total | $72,175 – $94,875 | $2,395 – $4,195 |
As you can see, downsizing could cost you between $72,175 and $94,875. If you live in a big city like Toronto, that $300,000 of equity might shrink to just $205,125 after accounting for these costs. However, these financial aspects are not the only challenges to consider.
The Downsizing Dilemma
Many Canadians underestimate both the financial and emotional impacts of downsizing, overlooking several factors:
- Home Improvements: Before selling, homes often require upgrades, ranging from minor fixes to major renovations, and many homeowners invest in staging their properties.
- Deciding What to Keep: Downsizing necessitates making tough decisions about which belongings to keep, which can be emotionally challenging and may incur storage costs.
- Leaving Family Homes: Parting with a home filled with cherished memories, especially for those who are widowed, can be difficult. Relocating might also mean losing connections to familiar communities and loved ones.
An Alternative to Downsizing: The CHIP Reverse Mortgage
The CHIP Reverse Mortgage from HomeEquity Bank offers a compelling alternative to downsizing. This option allows you to unlock up to 55% of your home’s equity as tax-free cash while remaining in your beloved home and community. The funds can enhance your retirement finances and be used for renovations to improve accessibility and comfort as you age. Plus, there are no required monthly mortgage payments, making the CHIP Reverse Mortgage a popular choice.
Contact your Dominion Lending Centres mortgage expert today to learn how the CHIP Reverse Mortgage can help you avoid the stress and costs of downsizing while enjoying a fulfilling retirement.
