What to know about selling your home in retirement

5-minute read September 21, 2021

Author: Sarita Harbour

Are you thinking about selling your home and renting in retirement? Or selling to move to a smaller home? Admittedly, the red-hot real estate market plus the idea of shedding homeowner responsibilities does hold some appeal. No more lawn mowing, snow shoveling, high heating bills, costly repairs, or home renovations.

However, as CBC recently reported, before putting up that For Sale sign, there are a few things to know about selling your home after retirement – including some of the risks of downsizing.

New location

While you might feel thrilled with your potential property value increase, remember, your entire community is experiencing the same market. And that means you may need to consider a new location if you’re thinking about saving money when downsizing your home in retirement.

Do your research on new neighbourhoods. Think carefully about whether you really want to leave your current community. After all, this means getting used to new amenities, navigating new streets, and often requires trying to find a new family doctor, dentist, and/or medical specialists.

Distance from family and friends

Where do most of your family, friends, and grandchildren live in relation to your current home? Moving may mean you’re farther away from your loved ones. Yet retiring means you’ll likely have more time to spend enjoying them when they’re close by.

In some cases, you might think of moving to support a family member who can’t afford housing, or who needs extra care. Yet make sure to evaluate the impact of such a move on your own social network.

Downsizing and bidding wars

One of the current risks of downsizing is that other retirees, as well as younger families ready to enter the real estate market by getting into a smaller home, are also looking. And this competition often means you need to be quick to put an offer or you could soon find yourself in a bidding war.

Bridge financing

The competitive buyers’ market for smaller homes means that selling your home in retirement could mean you’ll need bridge financing.

Bridge financing refers to a special type of temporary financing that allows homeowners to buy a new home by accessing some of the home equity in their current property - before the current home sells.

And although you may have heard other people speak casually of bridge financing, getting a bridge loan can be tricky to qualify for when you depend on pension and retirement income.

In addition, bridge loan interest rates are higher than regular mortgage rates (to reflect the additional risk to the lender) and you could also get hit with expensive bridge financing administration and legal fees.

Retirees and renting risk

If you’re thinking of selling your home after retirement to capitalize on a hot market then renting until the market cools, keep one thing in mind: the housing market is unpredictable.

It could be a few months, or even a few years before the market suits you. This means not only an additional move, but potential additional taxes on the tax-free equity you invest during the time you’re renting.

Moving costs

Moving isn’t cheap. Some of the costs you’ll need to budget for include:

Realtor fees
Legal fees
Movers
Utility disconnection and reconnections
Land Transfer Tax to purchase a new property

Estimate these costs carefully before making a final decision on selling your home when you retire.

Consider staying put

It’s true that it may be tempting to sell your home and rent in retirement, especially if you bought your home many years ago and only have a small mortgage remaining – or no mortgage at all. Before rushing to put your home on the market, consider staying right where you are.

If you’re selling your home just to gain access to the tax-free money locked in your property, consider this: you don’t have to move. And remember, if you do move, you’re looking for a new home in the same hot real estate or rental market that you’re selling in, which means higher rents or purchase prices for downsizing.

Another option: unlock your home equity

Unlocking your home equity starts by talking to a mortgage broker, advisor, or a trusted lender.

Mortgage brokers can find you a home equity line of credit or all-in-one bank account.

Advisors can do the same, but only through a mortgage referral to a trusted lender. Either way, consider the benefits of accessing the equity in your current home.

You could enjoy less financial stress in your retirement years. Even better? You won’t have the hassles of purging, packing up, dealing with moving companies, or jumping into a frothy real estate market.

To learn more, find an advisor today.
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