Does Downsizing Actually Save Money?

Thinking about downsizing to save money? The answer is yes, but with important caveats you need to understand before making this major financial decision.

Downsizing can significantly reduce your monthly expenses and free up equity, but the savings aren't automatic. Whether you actually save money depends on your specific situation, current market conditions, and how carefully you plan the transition.

The Real Savings Potential

When done strategically, downsizing delivers substantial financial benefits. Moving into a smaller home means reducing property taxes, utility bills, and home maintenance costs. Smaller homes generally result in lower heating, cooling, and electricity expenses, and the fees for repairs and upkeep are typically less due to reduced square footage.

The numbers can be impressive. One homeowner calculated that moving to a home worth 25% less would save approximately $400 monthly on mortgage payments alone. When adding reduced property taxes of about $127 per month and lower utility costs, total monthly savings exceeded $600. That's over $7,200 annually.

Another analysis shows that if you pay $4,200 monthly on your mortgage, principal, interest, taxes, and insurance, downsizing 10 to 15 years before retirement could save $40,000 annually in housing costs. These savings can fund retirement, eliminate debt, or simply provide breathing room in your budget.

Financial advantages include lower mortgage and utility costs, reduced property taxes on less expensive properties, decreased home insurance premiums for smaller homes, less money spent on maintenance and repairs, and potentially eliminating mortgage payments entirely if you can buy outright with your equity.

The Hidden Costs That Reduce Savings

Before celebrating your downsizing savings, consider the substantial upfront costs involved. On average, selling a home costs more than $31,000, including real estate commissions averaging 5% to 6% of sale price, closing costs when selling, repairs or updates to make your home marketable, and professional moving expenses.

Buying your smaller home adds more costs. When buying your downsized home, be ready to pay closing costs, generally between 2% to 5% of the home's purchase price. You may also need new appliances, furniture sized for smaller rooms, and potentially costly modifications to make the space work for your needs.

Many downsizers face unexpected ongoing expenses. Moving to a senior living community or condo complex could mean HOA fees, maintenance fees, and other expenses you don't have in your current home. These fees can range from $200 to $500 monthly or more, significantly eating into your expected savings.

Storage costs represent another hidden expense. If your new home lacks space for items you can't part with, you'll need to pay for storage space to house them, potentially costing $100 to $300 monthly indefinitely.

When Downsizing Costs More Than Expected

In some circumstances, downsizing your home can actually mean more expenses instead of less. If you bought your current home several years ago, home prices may have increased dramatically. Even smaller homes in desirable areas might cost more than what you can sell your current home for, requiring you to take on new mortgage debt.

Current interest rates compound this problem. If you're getting a mortgage on your downsized home, keep in mind that interest rates are much higher now than just a few years ago. Your new smaller mortgage might have higher monthly payments than your current larger mortgage if your existing rate is significantly lower.

Downsizing may save you money on your monthly mortgage costs, but make sure your new home doesn't come with any hidden costs such as high HOA fees, exorbitant property taxes, or unexpected maintenance. Location matters tremendously. Moving from a suburban home to a downtown condo might expose you to lifestyle inflation. Easy access to shopping, restaurants, and entertainment can tempt you to overspend until your new lifestyle eats up any savings from downsizing.

Maximizing Your Downsizing Savings

To ensure downsizing actually saves money, follow these strategies:

Calculate all costs comprehensively. Create detailed budgets showing current expenses versus projected expenses in your new home. Include mortgage or rent, property taxes, insurance, HOA fees, utilities, maintenance, and storage. Only downsize if the numbers clearly favor it.

Time the market strategically. Current market conditions in Cochrane, Airdrie, and Calgary show elevated inventory and balanced conditions favoring buyers. This creates opportunities to negotiate good prices on your purchase while still selling your current home successfully if priced realistically.

Minimize transaction costs. Every dollar spent on commissions, repairs, and moving reduces your net savings.
Consider whether strategic updates actually improve your sale price enough to justify costs.

Avoid lifestyle inflation. The biggest risk to downsizing savings is spending your newfound cash flow on upgraded lifestyle rather than saving it. Be disciplined about redirecting housing savings toward retirement accounts, debt elimination, or emergency funds.

Consider alternatives first. Before downsizing, explore whether refinancing your current mortgage, renting out unused space, or making your home more efficient might achieve similar savings without the hassle and cost of moving.

Who Benefits Most From Downsizing

Downsizing saves the most money for homeowners with substantial equity who can eliminate mortgages entirely, those moving to significantly less expensive properties with much lower ongoing costs, people downsizing 10 to 15 years before retirement while still earning good income, and those currently spending more than 30% of income on housing.

You may not save as much if you have low equity requiring a new mortgage at current high rates, you're moving to a property only slightly less expensive, or if HOA fees and other costs in your new home offset housing expense reductions.

The Bottom Line

Does downsizing save money? For many people, absolutely. The combination of reduced mortgage payments, lower property taxes, decreased utility costs, and less maintenance can free up thousands of dollars annually.

However, the savings aren't guaranteed or automatic. Transaction costs can exceed $50,000 when you factor in commissions, moving expenses, and new home closing costs. Hidden ongoing expenses like HOA fees can consume expected savings. And if market conditions or timing work against you, downsizing might not deliver the financial benefits you anticipate.

The key is approaching downsizing with eyes wide open. Calculate all costs honestly, both upfront and ongoing. Ensure your new home's total expenses are genuinely lower than your current situation. And most importantly, have a plan for directing those savings toward meaningful financial goals rather than letting lifestyle inflation consume them.

For Cochrane and Airdrie homeowners, current market conditions create opportunities to find well priced smaller properties while inventory remains elevated. Working with experienced local real estate professionals helps you navigate the financial analysis and ensures downsizing actually delivers the savings you're counting on.