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Pattie Lovett-Reid

Chief Financial Commentator, CTV


Downsizing sounds like the perfect retirement solution to many who have been unable to save enough, yet have seen the value of their home increase significantly. But in reality, moving  into a smaller space isn't a financial bargain for everyone.

A recent Ipsos survey commissioned by HomeEquity Bank found 39 per cent of current homeowners are skeptical downsizing will save them money. Nearly half (48 per cent) of homeowners 55 and older said they don’t ever plan to downsize. And three in 10 (27 per cent) of respondents who have relocated said costs were more than they expected.

The majority (88 per cent) of older adults who have downsized said they are pleased with their decision but admit it didn’t come without some regret and unforeseen sacrifices. For example, only 34 per cent had indicated they planned to move to a new city, while in reality, half of the downsizers moved outside of their community, with that number increasing among respondents aged 55 and older.

The reality is there are significant costs to downsizing that encompass financial, emotional, and even personal expenses. This is why a decision to relocate requires serious consideration.

There are a few options to consider.

  • Short-term funding requirements could be satisfied with a line of credit that could be paid off, and when secured by your home, a lower rate can be obtained.
  • Some will explore a reverse mortgage, which is a viable option for those over the age of 55 with a minimum property value of $150,000. The key advantage is the tax-free sum of money you can use for any purpose which will not have to be repaid until you sell your home or pass away. But the disadvantage can’t be overlooked when the rates are higher than for conventional mortgages, and for those counting on passing money along to the next generation or need funds for long-term care, you could find yourself in a difficult situation.
  • Others will look to downsize, but I’ve learned from personal experience that doing so needs to be cheaper, not just smaller. When you think about “downsizing,” you may imagine a smaller space — but one with all the amenities in a great location. The result could be a condo that costs just as much as the house you’re selling, plus moving expenses.

Test drive it before you actually go out and do it.

We tried to downsize when our children left for university — and then upsized again. It didn’t work because it wasn’t a lifestyle and living space we had been accustomed to, and it wasn’t one that we felt ready for. We were probably in the place less than eight months, so it was a costly mistake.

However, if you are carrying debt, your employment income comes to an end, and you have saved little for your golden years, the right funding instead of downsizing might be the retirement solution for you.