Many Canadians consider downsizing during their retirement years. Once their children have left the nest, the choice seems obvious: relocate to a smaller residence or a more affordable town and capitalize on the price difference. For many retirees, the funds from the sale of their home can significantly impact their overall lifestyle and financial well-being.
However, there are costs of downsizing to be aware of when reviewing your options.
Downsizing in Canada: A Cost Analysis
The cost of moving is an important factor to consider when deciding whether to downsize. The following is a cost analysis for a typical downsizing scenario using an example of selling a home for $1,000,000 and buying a condo for $700,000.
The money from the sale of your home could have a meaningful impact on your retirement finances. Theoretically, these transactions would free up $300,000 in equity while moving into a smaller home. But how much of would you get to keep? Below is an estimated list of associated downsizing costs:
The following are estimates and can vary by provider and region:
| Fees | Downsizing | CHIP Reverse Mortgage |
| Real estate fees (est. 5%) | $50,000 | N/A |
| Legal Fees | $1,200-$2,400 | $300-$600 |
| Land Transfer Tax (Varies depending on province and city) | $8,975 | N/A |
| Moving expenses (packing supplies, moving service, garbage removal, etc.) | $3,000-$6,500 | N/A |
| Furnishing and upgrades | $8,000-$25,000 | N/A |
| Home appraisal | $500 | $300-$600 |
| Closing fee | $500-,$1500 | $1,795-$2,995 |
| Total | $72,175-$94,875 | $2,395-$4,195 |
Downsizing costs could add up to between $72,175 – $94,875; and $300,000 of equity could be reduced to $205,125 after costs on the high end.
The following may also add to downsizing costs:
- Home Improvements: Before selling, homes often need upgrades, from simple fixes to major renovations like kitchens or roofs. Also, many invest in staging their homes.
- Belonging Decisions: Downsizing sometimes requires storage expenses for items that don’t fit in your new home.
An Alternative to Downsizing in Canada: The CHIP Reverse Mortgage
The CHIP Reverse Mortgage by HomeEquity Bank offers an alternative to downsizing allowing you to potentially unlock up to 55% of your home’s equity. These funds are tax-free and would allow you to staying in your home without leaving your community. Retirement finances can be improved, and funds can be directed to renovations or retrofitting your home for accessibility and livability as you get older. With no required monthly mortgage payments to make, the CHIP Reverse Mortgage is a popular solution.
Contact me to learn how a CHIP Reverse Mortgage can help you save on downsizing and potentially support your retirement. I’m always happy to help.
Adapted from DLC Marketing
Image Credit: Nick Karvounis Unsplash