Seven signs that it’s time to downsize your home

People decide to move homes for a variety of reasons. Maybe there’s a career change on the horizon. Maybe the home is no longer in your budget. Maybe you’re soon going to be empty nesters. Or maybe you find that space is becoming an issue — either too little of it, or not enough. While you might not think of leaving your forever home as you’re signing the mortgage documents, it’s likely that at some point down the line, your home will no longer meet your needs.

A 2018 survey by Royal LePage found that 41% of respondents would seek a smaller dwelling in retirement, while just over half (52%) said they have no intention of downsizing. And a 2018 study out of Ryerson University found that most baby boomers likely won’t downsize for about 20 years.

It doesn’t look like there’s an overwhelming number of Canadians with downsizing on their mind. But there could eventually be good reasons for them to do so. Here are seven telltale signs that you could benefit from downsizing your home. 

1. Too much space

One of the most obvious signs that you need to downsize your home is that you simply have too much space. If you have a four-bedroom home but it’s just you and your partner living there, it might be time to look at something smaller and better suited to your needs. 

If you’d rather stay in your home, Gus Skarlatakis, Broker of Record for Crescent Real Estate, a boutique real estate brokerage in the Bloor West Village neighbourhood of Toronto, has some creative ideas. 

“If you're not using the basement, convert it into a separate dwelling and rent it out. Even if you spend $50,000 to renovate the basement, you can get $2,000 a month in income. You get a payback of about two years.”

Skarlatakis says that this is a great option for those who like their home and location. They can essentially downsize without giving up their property, and it’s a move that will benefit others, especially in major Canadian cities that are facing a housing crisis.

“If you have a 2-storey house and you rent out the basement, you've just downsized by 33%,” says Skarlatakis. “That's a way to downsize and get paid and not have to move, and not have to pay realtors, and not have to pay land transfer taxes.” 

2. Too much maintenance

Another clear sign that it’s time to downsize your home is when the maintenance needs become too demanding for what you can handle — either physically or financially. 

“If you've got a great big house and it needs a lot of work, rather than doing that work, maybe it's better for you just to downsize and get a nice clean, finished bungalow,” says Skarlatakis.

“You kill two birds with one stone because you don't have the headaches, and you have a more appropriate amount of stairs.”  

If you have a 2-storey house and you rent out the basement, you've just downsized by 33%

3. Too many expenses

Many families find they need to downsize when their monthly expenses get too high. This can happen for a number of reasons, from a job loss, to rising mortgage interest rates, or simply buying at the top range of what they could afford when purchasing, rather than buying a more affordable home. 

Skarlatakis says that for people who’ve bit off more than they can chew in terms of mortgage payments, downsizing might be their best option. 

“If the month-to-month bills are in the forefront of your mind, don't be there. Get a smaller home.”

Skarlatakis does acknowledge that for many families this can be tough, as the costs associated with moving — especially early in a mortgage term — can be significant. Mortgage break fees or prepayment charges can be tens of thousands of dollars; then there’s realtor commissions, which can range up to 5% plus HST, legal fees of $500 to $1,000, and the cost of moving supplies and movers themselves. It's important to note, however, that real estate commissions are entirely negotiable; there is no standard commission. 

4. You’re frequently away

Those who find themselves away from home frequently, like snowbirds and those who just love to travel, may find that they don’t need such a large home to come back to, and that a smaller house or condo better suits their needs. Statistics Canada estimates there were anywhere between 300,000 and 375,000 Canadian snowbirds in the United States and Mexico alone in 2019. 

For those who don’t want to sell, Skarlatakis recommends converting their basement to an apartment, and living in it while renting out the upper floors to a family. 

“If you're traveling to Florida six months a year, living in the basement is easy. It's still your house, but you have a tenant who's actually house sitting for you and paying you to house sit at the same time.”

5. The house isn’t senior friendly

There are many practical day-to-day considerations for older adults who wish to remain at home. Things like the number of stairs, whether hand bars need to be installed in the bathroom, or whether or not the doorways are wide enough to accommodate a walker or wheelchair may play into whether or not someone chooses to downsize their home. 

Older Canadians who don’t wish to downsize can take advantage of the federal Home Accessibility Tax Credit for seniors (or those living with seniors) to make renovations that improve accessibility and safety of their home. The credit allows those 65 and older (or those with a valid disability tax credit) to claim 15% of up to $10,000 in expenses such as installing handrails, lowering cabinets, and widening doorways.

Sometimes we let the pendulum swing too far. Sometimes we miss the optimal downsizing point in lieu of making sure that it's the right decision

6. Cash flow needs

It’s rare to see people downsizing in cities like Toronto, where home prices generally keep appreciating.

“People can afford to be laissez faire and lax about their home because it just keeps going up in value,” says Skarlatakis. “There's no big economic driver causing people to be efficient with their housing investment.”

Still, downsizing does happen. Real estate is a fairly liquid asset, says Skarlatakis, and selling one’s home can add some much-needed cash into their portfolio. 

7. Major life change

A major life change, such as a divorce, the death of a spouse, job loss, or children moving out of the home causes many people to consider whether their current space is the best match for their new situation.

Widows are more likely to be impacted financially by the death of a spouse than widowers, according to a report by Statistics Canada, which means they may be more likely to consider downsizing. 

And when it comes to divorce, it’s not often that one partner has enough in assets to buy out the other in order to stay in the family home, nor the ability to refinance the mortgage under one income. This reality forces many couples to sell the home to stay financially secure.  

The downsides of downsizing

There are a number of things to keep in mind when downsizing, and there are frequent barriers for those wanting to sell. Here are some important things to keep in mind if you’re considering it:

Mortgage break penalties

Breaking your mortgage before the end of the term can be a costly endeavour. Skarlatakis notes that mortgage break fees can be upwards of $10,000 to $20,000, depending on the terms of your mortgage. 

I think people procrastinate until it's obvious, because there are no take backs

Requalifying under new rates and conditions

Another factor to consider when downsizing is that if you’re buying another house, you’ll need to qualify under new interest rates and conditions. While mortgage rates have remained fairly stable over the last few years, the new coronavirus is now casting uncertainty on interest rates for the foreseeable future. And mortgage qualification rules could continue to change.

Realtor fees, closing and moving costs

While Skarlatakis notes that many realtor commission fees are on the decline — about 4.5% total on average now compared to 6% in the ’80s and ’90s — this is also something to keep in mind when downsizing. Don’t forget about the land transfer tax, either, which varies from province to province. In Toronto, you’ll pay both municipal and provincial land transfer taxes. 

Don’t miss your downsizing window

Skarlatakis finds that many people wait too long to downsize, and can miss their window of opportunity if they aren’t mindful of the market. For most people, he says the decision takes a few years. 

“I think it's human nature,” he says. “When you're faced with a major decision, you wait until it's a no-brainer, which means sometimes we let the pendulum swing too far. Sometimes we miss the optimal downsizing point in lieu of making sure that it's the right decision.”

Complacency is a big barrier. Being comfortable in your home and community, as well as having good relationships with your neighbours (and not wanting to take a chance on new ones) can also cause people to stay in their home for longer than may be ideal.

"You just have to make the decision and then go for it,” says Skarlatakis. “I think people procrastinate until it's obvious, because there are no take backs. It’s not like selling a stock where you can go and buy it back any time you want — it doesn't work that way with a house. Once you sell it, it's gone.”