How to save big by downsizing your home
Are you looking for a way to make life easier and save money? Find out why downsizing your home may be the answer.
Downsizing to a smaller living space can help you dramatically reduce housing costs. With the kids moving out or retirement approaching, transitioning into a modest home often makes financial sense.
Aside from freeing up your home equity and lowering utilities, downsizing provides other significant money-saving opportunities. Here are eight ways downsizing your house can lead to major savings.
Reduce your mortgage
Moving into a smaller home with a lower purchase price or rent means you can substantially decrease your mortgage principal and interest. This frees up disposable income to save or spend elsewhere. Even slightly downsizing can wipe thousands off annual housing payments.
Lower utility and maintenance bills
A smaller home equates to fewer rooms to light, heat, and cool. Reducing square footage directly lowers costly utility bills each month. A smaller home also needs less regular maintenance like roof repairs and exterior painting which are based on home size.
Spend less on property taxes
Property taxes are directly tied to a home’s assessed value and size. When you downsize to a lower-valued property, you’ll spend considerably less in annual property taxes. For retirees especially, this savings adds up significantly over time.
Reduce homeowners’ insurance premiums
Homeowners’ insurance is critical for protecting the financial investment in your home. It covers damage and liabilities from events like fires, storms, theft, and accidents. Homeowners’ insurance safeguards your most valuable asset.
However, like property taxes, homeowners’ insurance rates depend heavily on the size, value, and risk profile of your residence. Transitioning to a smaller dwelling will likely drop your annual premiums, sometimes dramatically. Pay less to properly insure your home.
Decrease household expenses
Living in a smaller home makes it easier to reduce general household spending. Heating, cooling, lighting, and furnishing less space costs less overall. You can live affordably and invest more by conscious downsizing.
Smaller living motivates minimizing possessions to only what you use and need. As you downsize, determine what’s essential, and donate or sell the rest. If you need to, place any unwanted possessions into short-term storage until you have time to sort through them.
Embracing minimalism at home provides manifold benefits beyond aesthetic appeal. Owning fewer possessions reduces cleaning and clutter, freeing up time for activities you value. Minimalism also promotes sustainability by curbing overconsumption and waste. Financially, buying less stuff saves money long-term. Psychologically, decluttering calms the mind and reduces stress. With open space and only essential belongings, homes feel instantly larger.
Free up home equity
Home equity is the current financial value you have invested in your home. It is calculated by subtracting the amount still owed on your mortgage from the current market value of your home. As you pay down your mortgage loan and as property values appreciate over time, your equity increases. Home equity can be accessed through loans, lines of credit, or selling the home.
Trading down to a less expensive house releases equity that’s accessible as cash. You can invest this lump sum for retirement or use it to wipe out debt. Unlocking home equity provides opportunities to pursue goals.
Transition to a walkable community
Another way you can save money by downsizing is by moving to a walkable community. Some small homes are situated in highly walkable areas, which reduces transportation costs. Driving less by living near amenities like shops and parks saves on gas, parking, and car maintenance.
For many homeowners seeking increased savings or simplified lifestyles, downsizing just makes sense. Downsizing has many benefits, including allowing money to be redirected to other priorities. Carefully weigh the options to decide if transitioning to a modest home could lead to major savings that help you meet your goals.