Are you thinking of selling your home and renting in retirement? Or selling your house in Brampton, Canada or else? It's true that the excitement of the real estate market and the idea of eliminating the responsibilities of home ownership are appealing. No more mowing the lawn, shovelling the snow, high heating costs, expensive repairs and home renovations.
However, as the CBC recently reported, before you put up the "For Sale" sign, there are some things to know about selling your home in retirement - including some of the risks of moving into a smaller place.
New Location
You may be excited about the potential increase in value of your property, but keep in mind that your entire neighbourhood is affected by this market boom. This means you may need to consider moving to a new neighbourhood if your goal is to save money by downsizing your home in retirement. So know what is your house worth?
Research other neighbourhoods. Ask yourself if you really want to leave your current neighbourhood and community. After all, if you change neighbourhood, you'll have to get used to new amenities, navigate new streets and probably try to find a new family doctor, dentist or specialist.
Distance from family and friends
Where do most of your family, friends and grandchildren live in relation to your current home? A move may mean that you will be further away from your loved ones. However, if you retire, you will probably have more time to spend with them.
In some cases, you may consider moving to support a family member who can't afford a place to live or who needs extra care. But be sure to consider the impact of such a decision on your own social network.
Competition and bidding
One of the current risks of moving into a smaller home is that other retirees, as well as young families ready to enter the real estate market by starting with a smaller home, are also lurking. And that competition means you'll need to make an offer quickly, or you could find yourself in a bidding war.
Bridge loan
The competitive market for small home buyers may mean that when you sell your home in retirement, you will need a bridge loan.
A bridge loan is a special type of temporary financing that allows homeowners to purchase a new home by accessing a portion of the equity in their current home prior to the sale of the home.
And while you may have heard others talk about bridge loans as if they were a simple solution, getting one can be difficult when you are dependent on retirement income.
In addition, bridge loan interest rates are higher than typical mortgage rates (to account for the additional risk to the lender), and you may also have to pay costly administration and legal fees associated with this type of loan.
Risks of renting in retirement
If you're thinking of selling your home in retirement to take advantage of a rising market, and then renting until the market slows down, keep one thing in mind: the housing market is unpredictable.
It could take a few months or even a few years for the market to work for you. This means not only an additional move, but also potential additional taxes on the tax-free equity you invest during your rental term.
Moving costs
Moving is expensive. Among the costs you must include in your budget, don't forget these:
- Real estate agent fees
- Legal fees
- Movers' fees
- Utility cancellation and installation fees
- Land transfer tax for the purchase of a new property
Consider these costs carefully before making a final decision about selling your home in retirement.
Consider keeping your property
It's true that it can be tempting to sell your home and become a renter in retirement, especially if you bought your home many years ago and have only a small mortgage left - or no mortgage at all. But before you rush to put your home on the market, consider staying where you are.
If you're selling your home simply to access the tax-free money tied up in your property, consider this: you don't have to move. And remember, if you do move, you'll likely be looking for a new home in the same hot real estate or rental market in which you'll be selling your home, which means higher rents and higher purchase prices.
Another option: unlocking your home equity
To unlock the equity in your home, you first need to talk to a trusted mortgage broker, advisor or lender.
Mortgage brokers can find you a HELOC in Canada (home equity line of credit) or an all-in-one bank account.
Consultants can do the same, but only by sending a mortgage recommendation to a trusted lender. Either way, consider the benefits of accessing the equity in your current home.
It could mean less financial stress for you in retirement. And the best part? You won't have to sort through your belongings, pack boxes, deal with a moving company and enter a hectic real estate market.