Are You Sitting on Money?

Do you dread weeding the garden, mowing the lawn, and trimming the bushes when you could be golfing? Are you wondering why you’re paying to maintain a house that’s too big? Is your house too quiet? Have you always wanted to move to Arizona?

Congratulations, it may be time to downsize! This can be a very freeing experience that will save you time, energy, and money.

Chances are you’ll reap some nice profits from the sale of your current home. When you consider what you paid for your house, how much (if any) you owe on the mortgage, and your home’s current market value, most people find this an unbelievably attractive option for many reasons.

You’ll see notable savings in everyday expenses once you downsize. Why heat/cool a big house you no longer need? Why maintain a yard you don’t use? Why pay higher property taxes and home insurance? Why, for goodness sake, clean all those bathrooms and windows? What could you do with the time and money you’d gain?

AARP magazine printed a checklist of considerations for downsizing. One especially helpful suggestion was if you pay 35% or more of your monthly income toward housing, it would be worth selling and buying something more in line with your current needs.

Unfortunately many times homeowners are forced to downsize as a result of unpredicted family or health changes. This is such a difficult time to think clearly and tackle other major life changes. A better option would be to reap the rewards of a simpler lifestyle when you can most enjoy the benefits.

Some lending options are ideal for downsizers. A popular one is a home equity loan. If you’re living in a home that’s too expensive to maintain, though, a home equity loan will not help cut costs. A reverse mortgage would give you a steady retirement income. Check with your financial planner/lender to see if this is a good choice for you. There are also bridge loans if you’d like to purchase your next home prior to selling your current one.

Then there’s the question of whether to use your profits to buy your next home or invest the money and start another mortgage. If you can identify any investments you believe will give you more than the after-tax cost of mortgage interest, invest and take out the loan.

Here’s the way I figure it, say you’re in the 22% income tax bracket. If you get a loan today, interest rates are around 6%. Because you can deduct your loan’s interest from your gross income, (take 22% of 6—1.32—and subtract it from the 6%), you would need an investment that would return more than 4.68%. If you’re more on the conservative side of the fence, it would be better to simply use the profits from the sale of your home to purchase your next one (and take that trip around the world!).

Most people who proactively choose to downsize pick housing that matches or increases luxury and conveniences. Perhaps it’s a more sensible kitchen, a Jacuzzi tub, a security system, a walk-in closet, an attached garage, or a single-story home. Fortunately, there are many excellent options in this the Howard County area—including several over-55 luxury communities.

By gathering facts, you’ll be in a stronger position to make the best decision when you’re ready. How much is your home worth in today’s market? What are your alternatives? Think about it. It may be a great time to cash in on that money you’re sitting on.

Thank you for reading my article. Check back often on www.thegreenrealtor.com for more helpful information.