Home values have been increasing for 93 consecutive months, according to the National Association of Realtors. If you’re a homeowner looking to downsize your living space, that’s great news, as you’ve likely built significant equity in your home. As each month goes by, you can continue counting your equity dollars!
And Here’s some more good news: mortgage rates are expected to remain low throughout 2020 at an average of 3.8% for a 30-year fixed-rate loan.
So let’s see..You’re an empty nester mulling over the idea of downsizing now that the kids are gone. You’ve got a ton of increasing equity with prices at a premium and an incredibly attractive interest rate at your fingertips. So now you have to ask yourself the big question, “What the heck am I waiting for???” The combination of leveraging your growing equity and capitalizing on low rates could make finally conquer that fear of cleaning out your basement, telling the kids to come get their yearbooks, and finally make the big move!
The Impact of Low Mortgage Rates
Low mortgage rates can offset price hikes, so locking in while rates are low is key. For many downsizing homeowners, a loan with a shorter term is ideal, so the balance can be reduced more quickly.
Interest rates on 10, 15, and 20-year loans are lower than the rates on a 30-year fixed-rate loan. If you’re downsizing your housing costs, you may prefer a shorter-term loan to pay off your home faster. This way, you can save thousands in interest payments over time. What would you do with thousands of extra dollars with your simplified life? A Vacation? An RV? A boat?
Here’s How to Use Your Home Equity
For move-up buyers, the typical pattern for building financial stability and wealth through homeownership works this way: you buy a house and gain equity over several years of mortgage payments and price appreciation. You then take that equity from the sale of your house to make a down payment on your next home and repeat the process. Most of us 50-somethings have this process down to a science and have done it several times in our life by now, so it’s now time to change our train of thought.
For homeowners ready to downsize, home equity can work in a slightly different way. What you choose to do depends in part upon your goals.
According to HousingWire.com, for some, the desire to downsize may be related to retirement plans or children aging out of the home. Others may be choosing to live in a smaller home to save money or simplify their lifestyle in a space that’s easier to clean and declutter. The reasons can vary greatly and by generation and are usually a combination of all of the above. While I am from the generation who worked endlessly from sunup to sundown to afford the big house and BMW payment, I really admire the commitment to enjoying life that has come with the generations following me. Perhaps my generation can free themselves from the ball and chain of big mortgages and wasted square footage and embrace the idea of less is more; instead choosing to downsize to a smaller home with a small (or no) mortgage in an area where there’s lots to enjoy! Conversely, perhaps the younger generation can embrace home ownership and understand the pride that comes with showing your friends your first new house (even when you don’t have furniture yet) and seeing the equity of your investment lead to something great for you down the road. Ironically, both of these new beginnings lead to a modestly-sized home!
The bottom Line? Increasing equity, low interest rates and climbing prices make this the trifecta of buying a smaller home in 2020. No matter what generation you are from, I would love to help you evaluate your equity and how to leverage it in the best way possible. Call me today—AFTER you clean out the basement–and let’s make 2020 the year of new beginnings!
Amy Lemoine is a florida-licensed realtor with Venture 1 Properties. The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision.