For years, downsizing has been common throughout the Canadian housing landscape. When homeowners see their children all grown up and leave the nest, they have little need to own a larger residential property. In addition, the amount of work and cost to maintain a single-family home can be quite challenging for older households. Of course, inflation and cost-of-living factors are also considered for those struggling to pay their bills or approaching retirement, as they can use the accrued equity to help cover all or some of their living expenses in their golden years.

As a result, they will list their home for sale and relocate to a smaller property, whether a bungalow or a condo suite. Indeed, choosing to downsize and reduce your living space can have several financial upsides and help mitigate financial concerns you might have residing in a much larger home.

What Does Downsizing Mean?

Downsizing means transitioning from a larger home to a smaller living space, typically to reduce expenses and simplify your lifestyle. The downsizing meaning varies depending on your situation. For empty nesters, it might mean selling a four-bedroom family home after the children have moved out and purchasing a more manageable two-bedroom condo. For retirees, downsizing could involve selling a detached house in an expensive urban area and relocating to a more affordable community with a lower cost of living.

Practically speaking, downsizing typically involves:

• Selling your current larger home
• Purchasing or renting a smaller property
• Reducing your belongings to fit your new space
• Adjusting to a more compact living environment

While the physical aspects of downsizing require adjustment, the financial benefits often make this transition worthwhile. Let’s take a look at several of the financial upsides of downsizing.

The Financial Upside of Downsizing

Here are eight financial upsides of downsizing:

1. Lower Mortgage Payments

One of the most significant benefits of downsizing is the reduced costs associated with mortgage payments. A mortgage for a smaller property is typically much less than you are probably paying now, saving you on monthly payments amounting to hundreds or even thousands of dollars per month, depending on the price difference between properties. This way, you have breathing room in your budget and greater financial flexibility in other areas of your life. In some cases, you may even be able to purchase the smaller property in full since you will have sufficient cash flow from selling your existing home.

2. Reduced Taxes

How much are you currently paying in property taxes? A notable advantage of downsizing is lowering your annual tax bill. Remember, a home’s value for tax purposes is assessed on square footage. When you downsize from a 2,500-square-foot house to a 1,200-square-foot property, you could cut your property tax payments nearly in half. So, property taxes will be assessed at a lower rate for smaller properties, which can be a vital benefit of downsizing, especially considering that municipalities across Canada are raising their property tax rates to sizeable levels to cover budget shortfalls and keep up with inflation.

3. Lower Utility Bills

From more lights to greater energy consumption, utility bills are generally higher for larger residential properties than for their smaller counterparts. Therefore, by downsizing your living arrangements, you are far more likely to save on heating and cooling costs. A smaller home means fewer square feet to heat in winter and cool in summer, potentially reducing your energy bills by 30-50 percent, depending on the size difference between properties. Moreover, your new home will likely produce lower water bills if you do not have a yard in the downsized property.

4. Lower Insurance Costs

Many Canadians are taken aback by how much they spend on home insurance. While the premiums will vary, home insurance costs are typically lower for smaller homes than for larger properties, as insurance companies determine premiums based on the property size.

5. Reduced Maintenance Costs

Let’s be honest: Bigger homes require more maintenance. If you move to a condominium or a senior living community, maintenance costs are usually covered in your monthly payments and may be lower than those of a larger property. You also do not have to worry about snow removal or maintaining your yard or garden, as the condominium management takes care of these things.

Whether you need a roof repaired or the lawn mowed, maintenance costs add up—both financially and physically! Eliminating the time and physical effort of maintenance also provides an invaluable quality-of-life improvement, especially for those with health concerns or those who prefer to spend their time on activities other than home repairs.

6. Amenities and Membership Costs

The amenities are another upside of downsizing if you move to a condominium or senior living community. Most of these places provide their residents with several amenities, such as a fitness centre, swimming pool, clubhouse, sun deck, and tennis courts. In addition, depending on the location, there might be additional community activities.

Overall, these amenities can help you save on gym, pool, or club memberships.

7. Car Payments and Savings

Downsizing is a terrific opportunity to relocate to a community with better public transportation or a location that gives you walkable access to most necessities. This can help you save on fuel costs and may even enable you to give up your car altogether. Altogether, saving additional money on car payments, insurance payments, and car maintenance and repairs can add to your pocketbook.

8. The Joy of Decluttering

Let’s face it: A bigger home will usually mean accumulating too much stuff. Downsizing will allow you to reduce clutter, get rid of stuff you have never used in years, and get rid of your belongings. The decluttering process can be surprisingly therapeutic, with many downsizers reporting feelings of relief and mental clarity once they’ve simplified their living spaces and kept only what truly matters to them. You can easily and quickly profit from selling furniture and other items you will no longer use in your smaller home. Online marketplaces like Kijiji and Facebook Marketplace make it simpler than ever to convert unused possessions into extra cash during the downsizing process.

Remember, as the KonMari Method tells us, the best way to declutter is to ask yourself, “Does this bring me joy?”

Downsizing is Financially Advantageous

Overall, downsizing can be financially feasible depending on where you relocate and how much you can save. Statistics show that the primary reason for downsizing is to save money. Not only does the reduction in monthly expenses increase savings, but these savings could be reinvested or saved for retirement. The money you end up socking away every month can be utilized to reduce existing debt or pay off loans, which is another financial advantage.

Switching from a larger property to a smaller one can ultimately help you improve your financial situation and take away the stress you may have because of high monthly payments and debt. It can enable you to spend that money on something you would enjoy and ensure you are not constantly worried about paying your bills, which will likely be much higher for the larger property than the downsized one.

Ultimately, you can experience many other positive benefits like a simpler lifestyle, fewer tasks, less clutter, less time spent on maintenance and cleaning, and more money and time on hand to simply enjoy your life doing other activities and living a more balanced life. Rather than focus on exorbitant mortgage payments or ballooning monthly bills, your new concentration will be family, health, and everything else you enjoy in life.

If you're navigating this dynamic market, whether buying or selling, let's talk strategy. Our team can guide you through the most efficient processes, aiming to save you time, money, and hassle. Contact us today, and let's make your real estate journey successful!

Source: RE/MAX
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