Should I Consider a Smaller House Due To Debt?
Debt Reduction Strategies in New Westminster, BC
If you’re in debt, you may be considering downsizing your home. While considering a smaller house to get out of debt is one option, the experienced trustees at J. Bottom & Associates Ltd. want to help you explore debt reduction strategies if you live in New Westminster, Port Coquitlam, or North Vancouver, BC. Selling your house to buy a smaller house is one way to downsize your home and decrease personal debt. Many Canadians have applied for mortgage deferrals, but cutting ties with your mortgage takes it one step further. You can consider moving to a less expensive area or using your savings to pay off your mortgage, but downsizing could be a better choice. Learn more about the idea of downsizing your home, and get in touch with us to schedule your free consultation.
Don’t Be Fooled By Low Interest Rates
These days, low interest rates on mortgages can make debt seem normal. Many Canadians are used to debt by now, and most households rely on credit. If you’re serious about getting out of debt, your mortgage is likely your largest debt. As the economy begins to recover, interest rates are likely to rise, so getting out of debt now makes a lot of sense. The team at J. Bottom & Associates Ltd. offers various strategies to help you get out of debt. We would be happy to meet with you and explore your situation and your best options.
The Cost of Downsizing Your Home
While downsizing your home may seem like a good idea, there are plenty of costs involved with doing so. Spending too much money on housing costs can make you “house poor,” meaning your rent or mortgage and other home-related bills don’t leave you with enough money for other necessary expenses. It’s tempting to turn to credit cards, but downsizing your home might give you some financial relief. Moving is never cheap, even if you’re heading into a smaller home. There’s a lot involved, including selling your existing home, finding a new place to live, packing and unpacking, and more. Learn more about some of the following costs involved with downsizing your home:
- Taxes & Fees – You might spend thousands of dollars while buying a home, not to mention your down payment. Consider closing costs, land transfer fees, legal fees, real estate fees, and GST on fees.
- Down Payment & Mortgage Loan Insurance – You’ll need a 20% down payment to avoid mortgage loan insurance. The amount you’ll pay depends on your mortgage amount. If you put 10% down, you’ll pay 3.1% in mortgage loan insurance.
- Closing Costs – You need to cover real estate fees when selling your home, and they’re typically between 2-6% of the sale price.
- Mortgage Costs – You might be subject to an interest penalty if you switch to a smaller mortgage. Ask your lender to find out more information.
- Hidden Costs – Moving comes with a lot of hidden costs, including boxes, packing tape, and more. You may need to hire contractors to make repairs to your home before you sell it, and you might need to hire movers, cleaners, and other professionals.
Determining Your Real Financial Problem
While downsizing may sound good, the best place to start is determining if housing expenses are your real problem. You may have other expenses that are keeping you in debt. You could have an issue with a stable income, and there may be ways you can reduce your bills. Everyone in your household may not be doing their part, and some debts may be short-term problems while others are long-term nuisances. Use a budget to explore your numbers and find out if downsizing your home is the best option.
Requirements & Challenges of Downsizing
You may be able to save a lot of money by downsizing your home, but there are certain requirements and challenges related to doing so. Paying less for housing doesn’t mean spending more money in other areas if your overall plan is to get out of debt. You will need to make a lifestyle adjustment when you move into a smaller home. For financing your new home, a good credit score is preferred. You need sufficient home equity if your goal is immediate debt reduction. You’ll need to work with a lender who can approve you for a mortgage for your new house. You might be underwater on your mortgage, so your lender may need to do a short sale.
Schedule Your Free Consultation Today
The legal team at J. Bottom & Associates Ltd. is here to help you break the debt cycle. We have proven strategies to help you get out of debt or reduce debt, and it all starts with a free consultation. There’s no such thing as a silly question, so don’t hesitate to contact us today.