The idea of being ‘mortgage free’ is a dream for almost anyone. Mortgage payments seem unending, and most of us will not see an end to them until post-retirement.
However, if you want to achieve a mortgage free life sooner rather than later, you may consider downsizing. Many people use this as an excellent way to become mortgage free – and therefore reduce the stress (and outgoing payments) in their life.
Read on for your guide to downsizing to be mortgage free.
Does downsizing help you be mortgage free?
Many people nearing retirement age look towards downsizing as a convenient way to become mortgage free.
Downsizing helps you to be mortgage free if the amount remaining on your mortgage is less than the difference in value between your current and new house.
For example, if there is £100,000 remaining on your mortgage, and the difference in value between your current and new house is greater than this number, then you should be able to pay off your mortgage.
The advantages of downsizing
In addition to the section above, there are further financial benefits to downsizing. For example, smaller and less valuable properties are typically less expensive to maintain. Therefore, not only will your mortgage payments reduce, but your regular payments for utilities may decrease too.
Downsizing may also enable you to purchase a property with beneficial features, which you perhaps hadn’t required when purchasing your property home. For example, if you are nearing retirement age, you may benefit from a ‘more accessible’ home, such as wheelchair-friendly access and a stairlift.
You may have some extra cash to spend after downsizing from a larger property to a smaller one. This means that, in addition to paying off your mortgage, you could use any remaining cash to live the dream retirement lifestyle that you’ve always wanted. Perhaps you could visit your relatives in another country, or take a holiday to a country you’ve always wanted to visit. There are limitless things you can do with the money you save.
Alternatives to downsizing your home
Many people seek to downsize their home for financial reasons – but there may be other options available to you, in order to achieve the financial situation you are looking for.
Equity Release is a common option for homeowners who are nearing retirement age. This can enable you to access some of the value of your existing property, without having to sell it altogether. This is beneficial if you need a cash influx, but also have strong emotional attachments to your current house.
You may also choose to rent out one of the rooms in your property, to earn some extra cash. While some people nearing retirement age do not opt for this, as they are looking to reduce the stress in their life, others take great enjoyment in forming a new friendship and having someone to keep them company. This option will also provide you with some extra income.
Some homeowners may choose to rent out their entire property. This is a common option for people in retirement who want to move to another country (albeit temporarily). Your new rented residence in the new location is up to you – and you may choose to downsize if you wish – but this option can enable you to continue paying off your mortgage, while using your savings to enjoy life in a new place.
How to downsize your home
It is important that you give a lot of thought to downsizing your property before you initiate the process of doing so. Once you have sold your current house, there is no turning back, and you may be upset about losing a place with so many memories.
Once you have decided to downsize your home, you should consider what you are looking for in the new place you wish to buy. For example, bungalows are a popular choice for retired individuals who are downsizing – but this type of property is not always easy to find. You may also wish to consider a Park Home or a Retirement Village as viable options. Whichever you prefer, you should be clear on this decision before approaching an estate agent, as this can make the process quicker and successfully narrow down your options.
Once you have contacted an estate agent, they will take you through the usual buying and selling process. This will enable you to sell your current property, and move into a new one.
If you are nearing retirement age, then you have hopefully experienced the house-selling process before, and will work with your agent to find the perfect property for your needs.
Next, you should assess which furniture can be taken into your new property. This may be a challenge because, due to you downsizing, not everything will fit. You may have to compromise with your partner (if you live with one) and be ruthless at times. For anything you don’t need, you can use auction sites, gift them to friends, or sell them.
Once an exchange of contracts takes place, you will need a removal company to move your belongings to your new property. This should be booked several weeks or months in advance. And finally, with a farewell to your old house, you should hopefully be able to purchase your new property outright.
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