Downsizing: The big shift
Question: My boyfriend (of 13 years) and I currently own a 3000 sq ft home. We realize that we have much more house than we need. Realistically, we use maybe, half of the house. We have been thinking about downsizing because we feel like we are wasting money–paying for square footage we don’t use; paying to heat/cool square footage we don’t use; paying property taxes on square footage we don’t use; paying homeowner’s insurance on square footage we don’t use and maintaining said square footage. We purchased ou5 home in 2005 at 485k. We live in a very stable housing market and despite the trend, our property value has increased and homes on our street have sold above value.
Although we are only 39 and 42 years old, without children, we are thinking about the next stages of our professional and personal lives, and would like to slow down professionally and enjoy life a little more. We are thinking about selling our home in the next 4-5 years and buying a much smaller home. Our question is: Since we have have paid down a significant portion of our 15 year mortgage (always paid extra each month and put down a large down payment), we will have about 350k left after paying off our mortgage (assuming 5 years from now). Are we better off paying cash for the smaller house, having no mortgage and thus, much less financial vulnerability since we have very little debt right now or maintaining a mortgage and investing the profit from our home? We appreciate your advice. Have a great day, Vicki, Penn Valley, PA
Answer: I like what you’re doing–and thinking. You’re absolutely right about the money you’re wasting on a bigger home. Small homes are financially smart. Large homes cost significantly more to maintain. Property taxes are higher. The savings from running a small home compound over time–especially once you factor in the high and rising cost of energy.
Downsizing your home is a key step toward a major shift. In lifestyle, a different balance between work and other activities.
I would recommend reading Marc Freedman’s The Big Shift: Navigating the New Stage Beyond Mid-Life. It just came out and it addresses many of the issues people like you and your boyfriend face when they’re thinking about changing the rhythm of their lives. Marc is founder of Civic Ventures, a nonprofit that encourages people to launch second and third careers. His insight is that experienced workers can use their talents to address serious social problems, such as sustainability and homelessness, while finding more meaning in what they do every day.
Being debt free makes the kind of change you’re thinking about easier to accomplish. I would recommend not carrying a mortgage.
However, I have one caveat. Major life transitions are often harder and take longer than we imagine. There may be a time of experimentation, perhaps a false start or two, a wonderful idea that turns into dross. If that picture reflects you and your boyfriend you might want to try a two-step approach to being debt free. First, put a hefty down payment on your smaller home and take out a mortgage with no prepayment penalty to close the deal. You’ll have a nice stash of savings to tap if you need it during the transition period. I would pay off the mortgage once you have a sense of what you’re doing. You’re debt free and on to the next stage of life.
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