Should you downsize? Listing the pros and cons may help you to decide.
To downsize or not, that is the question. Perhaps these financial pros and cons will help you to reach a decision?
Let’s be honest, the reason most of us consider downsizing is to better our financial position. With so much of our capital tied up in the family home, it makes sense to release it and give yourself some extra cash to improve your standard of living. But before you rush off to put your house on the market, here are some of the financial pros and cons you should consider.
Enjoy a smaller home
Pro: A smaller home often means less money spent on maintenance.
Con: You may have to spend more to buy your home than anticipated, especially if it’s the type property that’s sought after.
The chance to try before you buy
Pro: Releasing the capital in your home – especially when the market is buoyant – and renting in the area in which you’re keen to live, will give you a real sense of whether it’s truly where you want to be.
Con: Renting can cost more than paying a mortgage, and you may find that when you come to buy, you no longer have the savings required to do so in the neighbourhood of your choice – or that the market has increased considerably and is therefore unaffordable.
Gaining more disposable income
Pro: Having extra cash on hand for emergencies, or even for some of life’s little luxuries, is comforting.
Con: The more money you have, either in income or assets, the smaller Age Pension you will receive – in fact, you may find you receive none at all.
Pro: More Australians than ever are heading into retirement with a mortgage and a considerable amount of debt. Releasing the capital in your home can help you reduce your debt and you can possibly even become debt-free in retirement.
Con: When you factor in the costs of buying and selling a home, such as agents, legal and removalists fees, as well as stamp duty, this can considerably reduce the amount of money you have to pay off your debt. You may even find that the proceeds from your sale are simply not enough to cover the full amount you owe.
Diversifying your investment
Pro: There’s no denying that your home is your greatest investment and with continued speculation about the strength of the Australian property market, it may make sense to look at alternative ways of making your money work for you.
Con: Any investment comes with risk, and if you haven’t received the correct advice, you could find your nest egg drastically reduced.
Disclaimer: This information is general in nature and has been prepared without taking into account your objectives, financial situation or needs. Before making any decision based on this information, you should seek professional advice.