Things change as people age. If they have children, they’re likely adults and have moved out of the household. And as people near retirement, they have to start planning how they’re going to manage their finances and live on a fixed income.
As a result, many retirement-age homeowners consider selling their home in favor of something smaller and more affordable — a practice known as downsizing.
But while downsizing could be a good option for some people, it’s not always the right move, and it’s important to know some of the potential downsides before you move forward with downsizing.
So what, exactly, are the downsides of downsizing? A recent article for realtor.com outlined reasons why downsizing your home might not be the right move — particularly in today’s market — including:
- It’s not the best time to swap a mortgage. 30-year fixed mortgage rates are currently hovering around 7 percent. If you were able to lock in a mortgage when rates were historically low (for example, 3 percent), swapping out mortgages right now may not make sense; instead, you could find yourself in a smaller home with a similar mortgage payment and a longer loan term, which would prevent the kind of significant savings people are generally looking for when they downsize.
- You can’t afford the cost of selling. Many people downsize because they want to lower their living expenses. But there are costs to selling a home, like real estate agent commissions, closing costs, and potential capital gains tax implications. Depending on your financial situations, those upfront costs might actually outweigh the longer-term savings on living expenses associated with moving to a smaller home.
- A larger home offers more possibilities. Keeping a larger home offers a variety of possibilities for people post-retirement. For example, if you have extra space in your larger home, you could rent it out on platforms like Airbnb to generate extra income, or you could share the extra space with family members, like an adult parent or child.