small house

A Smaller Home can be Rewarding

Like so many other mortgage advisers, I can push larger houses for higher commissions but I feel I have to speak to you about the benefits of buying into a smaller house too. Downsizing into a smaller home was once associated with retirees and empty-nesters, but not anymore. An increasing number of money-smart and hard working people are buying smaller homes.

If you look at it from a corporate perspective, downsizing is a money saving exercise. Companies shut facilities, shed manpower and close business lines because it saves money. When this occurs, the market is happy and the company’s stock price rises in anticipation of greater profits. You get the same thing, when you move into a smaller home.

Soaring home prices and energy prices indicate that the cost of living is rising. In this scenario, moving into a smaller home can bring financial benefits. Here are some more reasons.

Reduces your mortgage payments

Monthly mortgage payments can take a chunk out of your earnings. Downsizing into a smaller home can directly effect mortgage payments, positively. Your monthly expenditure will decrease, your free cash flow will increase and you will save a massive amount of money on just the interest, over the term of your loan.

Moving into a new neighborhood

In the city, there are many neighborhoods where the cost of living is lower. Where you live can impact the cost of commuting, groceries and more. You may have to travel fewer miles to reach your office and if you shift from the suburbs into the city, you can even get rid of the car altogether.

Lower utility costs

Lower utility costs are another plus point if you buy a small home. A smaller space to cool or heat translates into greater savings at the month end.

Reduces the maintenance cost

You have to spend money and time on maintenance after buying a house. It cannot be avoided. Over the years it can add up to a significant amount. However, if you move into a smaller house you can do away with or reduce some of the expenses like landscaping, resurfacing the driveway, painting the rooms and more. When things become dirty or old like the roof or when you have to buy 1500 ft of carpet rather than 3000 ft of carpet, you will incur lower expenses.

Downsizing creates opportunities

Reducing expenses is not the only opportunity that you have. Consider what are you going to do with the money that you save. If you save $500 every month, at the end of the year you will have $6000. Over the next ten years, you can save $60000 even if you just keep the money locked up inside your cupboard. At a 4 percent rate of interest, $60000 will become $73818. If you invest in the stock market, you may earn even more. You could also spend some of your savings on a shopping trip, a new car, season tickets to your favorite game or on traveling.

It is not only about the money

Apart from the substantial savings, when you move to a small house you also get other benefits. In a smaller house, your work will reduce (less cleaning). You can use time to visit friends, indulge in a hobby, relax or travel. You have to ask yourself would you rather do this or spend hours improving, cleaning or fixing the house.

To succeed in running a home, you need a plan. A bigger house has benefits too and moving into a smaller house is not a win-win situation entirely. Weigh the pros and cons before you take any decision or if you feel you should take a professional’s advice.