Struggling with debt is extremely common, and many homeowners have looked into downsizing to try and alleviate their debt. Whilst this can be really beneficial to some, it may not be the right choice for everyone, so you need to make sure you know all the possibilities before committing.
Generally, as long as the value of your house is enough to pay off all your debt and leave you with money to live comfortably, you should be okay.
What Is Required To Downsize?
You’ll need to be able to sell your current property and have enough funds to buy something more affordable. This process is much easier if you have a low mortgage and a high credit score, as this will give you the best chance at being accepted for another mortgage.
If you’re still paying your mortgage and there’s a good amount left to play, you need to make sure that you have enough home equity to sell your property and cover all expenses. You won’t just have to cover your new properties cost, you’ll have to pay for the relevant fees involved with moving and pay off your debt in full.
What Are The Challenges Of Downsizing?
It can be hard securing a mortgage for a new property whilst your name is still on your current mortgage. You will need to have a good credit score and enough finance to assure the lender that you’re able to handle a second mortgage.
An issue may occur if your original property doesn’t sell for as much as expected. To begin with, you take an estimate price to help find a financially viable property to move in to. If the money you ultimately receive is much less, it may no longer be possible to escape your debt cycle and live comfortably in your new property. In this case, you may need to consider downsizing even further.What Else Should I Do Before I Downsize?
It’s really important that you scrutinise your finances and spend some time checking what impact can be made from reducing your monthly living costs. If you are able to manage your money better, it could make a huge difference and allow you to find something more spacious when downsizing. It will also ensure that by downsizing you’re moving in the right direction with your finances. For example, if you downsize but still overspend each month on utilities and personal spending then it will be a waste of your time, effort and money to move.
In short, take some time to list your income and your outgoings each month. Scrutinise it and see where you could save yourself some money. You will likely surprise yourself!
What Is The Cost Of Downsizing?
Put simply, downsizing is not cheap. There are taxes to pay, along with legal fees, moving costs and any redecorating that your new house requires. You need to consider whether all of these upfront costs are going to be affordable for you and ensure that a move will be worth it in the long-term.
This can often be entirely dependent on your current mortgage. If you’ve paid off the majority of it, it will be more beneficial to downsize as you’ll be able to focus your funds on paying off your debt and buying a new house. If there is a substantial amount of your mortgage balance left, you’ll have to direct your funds towards the debt and will have less disposable cash for the move.
Something else to consider is the changes in outgoings caused by moving. For instance, if you’re currently living in a 3-bedroom house but are only using one of them, downsizing could save you a significant amount on your bills through the winter. Long term changes like these are likely to ease your debt and put you in a stronger position going forward.
When Is The Right Time To Downsize?
This is completely dependent on you, but there are times when downsizing becomes a more prevalent option in life. If you’re coming close to retiring but are struggling with debt or have a large mortgage, downsizing is often favoured as a way to clear debt and make your retirement easier and more enjoyable.
Looking to sell your home and downsize your property? Why not ask Olivia Rose Estates for advice, as we buy any house. When you sell your property to us you can rest assured that our service will remain transparent and simple. We remove the need to deal with Estate Agents and often inconvenient and time-wasting property viewings. We can offer a guaranteed cash purchase for your property in a timescale that suits you. It could be a couple of weeks, or even just a few days.
