GRS Home  Forum Home
Bank Rates Center
   Savings Account Rates
   Money Market Rates
   Highest CD Rates
Insurance Rates Center
  Auto           Health
   Life              Home
Mortgage Rates Center
  Mortgage Rates
  Mortgage Quotes

Last visit was:
A place for Get Rich Slowly readers to ask questions
and exchange ideas
It is currently Thu Aug 21, 2014 11:02 am




Post new topic Reply to topic  [ 13 posts ] 

What downsizing option makes most sense?
(1) Find a cheaper house, and trade to a 15-year mortgage. 0%  0%  [ 0 ]
(2) Cheaper house, but stay with a 30-year mortgage. 0%  0%  [ 0 ]
(3) Pay ahead on the current 30-year mortgage. 100%  100%  [ 5 ]
Total votes : 5
Author Message
 Post subject: Right way to downsize?
PostPosted: Tue Feb 21, 2012 3:48 pm 

Joined: Tue Feb 21, 2012 2:26 pm
Posts: 4
Hi, I discovered GRS and the forums only recently. I have questions about downsizing, and was looking for specific advice that I've not yet found on the site. If you can help (either with an answer or pointing me to prior posts), I'd appreciate it.

My husband and I have 2 young children. We have lived for the past 3 years in our "forever" house, chosen in part for the public school zoning. I was about to go on a decorating binge to finally personalize the home we've occupied for 3 years, but then thought that could be a waste of money if what we really ought to do is downsize to a more modest house altogether. That's what led me to this site.

We have not overspent on our home and have followed the 25% rule. But having befriended couples who live more frugally, and then helping my brother find his new home recently, I thought maybe we ought to aspire to live happily with even less. But I have quandaries about proceeding, and need input on our options.

Option (1) in our desired school zones will likely mean an older home that will need more upkeep and perhaps remodeling. I wonder if this is worth making us move from a home we love (which was completely gutted and remodeled before we moved in)--both emotionally and financially--since selling and buying a home involve some large expenses.

Option (2) may become a necessity if one of us decides to take a lesser-paying job. Luckily, for now, that is a matter of choice we've been pondering in order to get more family time. Still, I wonder if this or Option 1 would be the more prudent approach if we should lose income involuntarily. (Currently, our childcare expenses are greater than our housing, so my back-up plan is to save on that huge expense once both kids are in school within the next 3 years, but we'll still have afterschool and summertime care expenses.)

Option (3) is the path of least resistence, allows us to stay in a home we love, but would actually increase our monthly expenditures if we pay extra to pay down the mortgage faster.

Obvously, another choice is to do nothing at all, but I think the point is to make a change in our lives that improves our financial standing in the long run. What say you wise people?


Top
Offline Profile E-mail   
 Post subject: Re: Right way to downsize?
PostPosted: Tue Feb 21, 2012 4:17 pm 

Joined: Wed Oct 07, 2009 4:16 pm
Posts: 959
Do you stand to lose money if you downsize?

Or rather are you underwater on your mortgage?

If nothing is broken, then what are you trying to fix?

You don't have to decorate every square inch of your walls in art or furniture.

You have no idea how much money you could possibly have to put into this older home if you were to go that route.

_________________
Be what you want to attract.


Top
Offline Profile   
 Post subject: Re: Right way to downsize?
PostPosted: Tue Feb 21, 2012 4:23 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1605
Location: Seattle, WA
Why do you want to make this change.

Are you having trouble making ends meet with your current housing expense? Is it preventing you from meeting other financial goals?

Do you feel that you "should" be spending less on housing? That you should be happy with a smaller house?

How much cheaper would a hypothetical smaller house be? How much might it cost to fix it up? How long would you live in it? What would the transaction costs be for selling your existing house and buying a different one?

Are you underwater on your current house? Are you thinking about a strategic default? Do you have enough money for a down payment on a new house? With or without selling your existing one first?


Top
Offline Profile   
 Post subject: Re: Right way to downsize?
PostPosted: Tue Feb 21, 2012 9:38 pm 

Joined: Tue Feb 21, 2012 2:26 pm
Posts: 4
Thanks for the responses.

We're not underwater on the current mortgage; would probably break even in a sale, but would have to pay upfront closing costs, etc. on new house, plus all the expenses that go with moving from one place to another.

I would not be spending a fortune decorating the current house, but would expect to spend $5-10k over the next year. We can afford it, but I'm such a waffler. On the one hand, it's driving me crazy to have a bunch of mis-matched items in the house, and if it will be our "forever" house, I want to make it homey to me and a place that makes me happy every time I walk in the door. On the other hand, I'm a generally conservative spender, and I wonder if I should put the money to better use, like paying down the existing mortgage and just learning to live with mismatch.

If we downsize to a house that needs remodeling, I would only choose one that needed merely minor fixes, like new kitchen appliances, some new carpet, etc.), I'm the type who'll love to fix it, so we would not be saving much in the short term, but I'd hope to get ahead financially in the long term. I'd want this to be our "forever" house but would expect to be in it for at least 15 years (the life of a 15 yr mortgage). I think we can find a reasonably "lesser" house that costs about 20% less than our current one. Depending on the price, we could potentially buy it and have enough for the downpayment without first selling the current one by using our savings. But we could not afford to keep both houses for long, 6-months to a year at most.

My two main reasons for considering downsizing are:
(1) If we can live WELL within our means, then we can save more and be better prepared for whatever lies ahead (not that we're one or even 10 paychecks away from disaster, but...); and
(2) Having a smaller debt might enable one (or both) of us to work less to have more time with our kids, something we've been mulling over.

Finally, I think seeing others live comfortably on less has me thinking that we ought to try. The question is, would such a move be worth it?


Top
Offline Profile E-mail   
 Post subject: Re: Right way to downsize?
PostPosted: Wed Feb 22, 2012 5:05 am 

Joined: Thu Apr 05, 2007 3:05 pm
Posts: 1328
My feeling is that if you truly love your home and you had considered it your "forever" house, then you might as well stay there and dig in. Whether you're underwater or not wouldn't even matter in this case, since you wouldn't plan to sell it until many decades from now, during which time its value would presumably increase.

A lot of people view houses as an investment and treat housing decisions as purely financial in scope. I'm not one of those people. I'd say move only if you happen to find a home that you love more than your current one. Sometimes smart financial choices aren't the best life choices and vice versa; it really depends on your personal priorities.

The 30-year vs. 15-year mortgage brings up similar non-financial considerations: While it's true that you'll waste an awful lot more money in interest over a 30-year mortgage than a 15-year mortgage, the longer mortgage could give you more freedom to allow one of you to cut back on your work and spend more time with your kids, which is clearly a priority for you. And in the meantime you can always temporarily increase your monthly payments to help chip away at the principal, or save up for a lump-sum payment against the principal each year, effectively reducing the term of your mortgage without being constrained down the road by having a 15-year mortgage and no way to get out of the higher monthly payments. I've used this strategy to reduce my own 15-year mortgage down to a 10-year payoff time frame.

You have plenty of opportunities to be frugal in other aspects of your life; they might not make up financially for owning too much house, but they'll make a difference. And instead of thinking of it as "too much house" you can just think of it as the home you always wanted, the place you love to be, and settle in, make it your own, and commit yourself to enjoying it without regret.

Also keep in mind that the "what if" game runs both ways. If you stay where you are you could always wonder how things could have been better in a smaller house, whereas if you move you might end up wondering how things might have been better if you'd stayed. And with the house you're in, you pretty much know what you have; a new house always has unknown issues that could emerge during renovation or a few years down the road. Finally, consider that renovations are disrupting and potentially dangerous to kids (I'm thinking of all the dust and fumes in the air, etc., especially with an older home that may once have been painted with lead-based paint), which is an argument against buying an older home and living in it while renovating.


Top
Offline Profile   
 Post subject: Re: Right way to downsize?
PostPosted: Wed Feb 22, 2012 12:42 pm 
Moderator

Joined: Wed Sep 23, 2009 9:01 am
Posts: 5316
champagnetastes wrote:
(1) If we can live WELL within our means, then we can save more and be better prepared for whatever lies ahead (not that we're one or even 10 paychecks away from disaster, but...); and
(2) Having a smaller debt might enable one (or both) of us to work less to have more time with our kids, something we've been mulling over.

Finally, I think seeing others live comfortably on less has me thinking that we ought to try. The question is, would such a move be worth it?[/color]


(1) What is stopping you from living well within your means now subject to the constraints of not spending a lot of money moving?

(2) Having a smaller debt would simply reduce your debt service costs. If that is a significant part of your expenses then it could be worth it. There are two ways to reduce that. You can reduce your principal by selling and buying a cheaper house or you can reduce your rate by refinancing. If your goal is to improve cash flow then you will be far better off refinancing. If your goal is to reduce your debt then maybe selling and buying something cheaper is the best course.

You are ignoring something that people usually do - appreciation. Your house will generally appreciate at the inflation rate. That gives you a phantom income of around 2% of its value every year right now. Buying a cheaper house means that phantom amount goes down. I know that's a little vague and abstract to think about but you can't rationally talk about price (which is a measure of net present value) and then ignore those kinds of things. Doing so will always drive you to either live in a cave or stop following that path of thought.

Finally, it really sounds like there is peer pressure going on here. You met people who are more frugal than you are so you want to be like them. There is nothing wrong with that. But just realize that "living on less" like they do is only possible for you if you spend money to put yourself in that position. The logic of that escapes me.

If you want to move it sounds like you are financially well enough off to do so. If it makes you happy then that's probably what you should do. But don't fool yourself into thinking that moving is a way to save money. You'll spend a lot that you can never recover and you'll find yourself back in pretty much the same situation.


Top
Offline Profile E-mail   
 Post subject: Re: Right way to downsize?
PostPosted: Wed Feb 22, 2012 4:18 pm 

Joined: Tue Feb 21, 2012 2:26 pm
Posts: 4
DoingHomework wrote:
If you want to move it sounds like you are financially well enough off to do so. If it makes you happy then that's probably what you should do. But don't fool yourself into thinking that moving is a way to save money. You'll spend a lot that you can never recover and you'll find yourself back in pretty much the same situation.

I think this response sums up the situation best, but I am a little surprised. I do like my home and have wondered if a lesser home will really make me better off, both financially and emotionally, that's why I turned to this board. I guess I asked in the first place, because I grew up in a financially unstable home, and I sometimes feel guilty for living with more than I need because I can. I also feel like one can rarely be overly thrifty (or at least I'm in no danger of doing that). But you all have given me good thoughts to mull over. Thanks!


Top
Offline Profile E-mail   
 Post subject: Re: Right way to downsize?
PostPosted: Wed Feb 22, 2012 6:22 pm 
Moderator

Joined: Wed Sep 23, 2009 9:01 am
Posts: 5316
I was wondering why someone who chose a nickname of "Champagne Tastes" would be asking about how to be even more frugal!

There is a lot of distance between living below your means and living on as little as possible.


Top
Offline Profile E-mail   
 Post subject: Re: Right way to downsize?
PostPosted: Wed Feb 22, 2012 6:25 pm 

Joined: Fri Jul 11, 2008 3:29 pm
Posts: 167
I have wondered the same thing. I can afford my house but it really is too much house for me right now. But when I look at the costs to sell it and buy a new house the savings just don't seem to be there. I think eventually I would save money but by that time I might want or need a bigger house. So Ive decided to stay in my house at least for the next few years. I'll reevaluate then.

And I do generally agree that you can't really be too thrifty except when it comes to food. I'm not saying you have to spend a lot on food to be healthy but I know a few people that just buy cheap food and I think its detrimental to their health. But that's just IMHO.


Top
Offline Profile   
 Post subject: Re: Right way to downsize?
PostPosted: Wed Feb 22, 2012 7:58 pm 

Joined: Sat Oct 22, 2011 8:19 am
Posts: 80
Why not do a little of everything?

Are there rooms you hardly go in? Don't heat them. We hardly ever go upstairs in our house and our house is pretty small. No heat is up there and it cuts our utilities, which helps be more frugal.

If you feel the house is too big and there is wasted space find a way to put the space to use? Like maybe having a family member move into help with the kids or rent a room to them or something. Start a hobby. Foster some pets. There's a lot more options.

In all honesty I'd stick it out -- you seem to love your house and you do appreciate what you have. Also, prepaying the mortgage there is nothing wrong with it. I've never paid the minimum on mine and I don't even think twice of it. It is one way to get a guaranteed return on money.

And then be thrifty and over the course of time upgrade/update/decorate the house the way you want it to look. If you're worried about breaking the bank just do one room at a time, set a budget, and stick to it.

Do what makes you happy. You've earned it.


Top
Offline Profile E-mail   
 Post subject: Re: Right way to downsize?
PostPosted: Wed Feb 22, 2012 9:00 pm 

Joined: Tue Feb 21, 2012 2:26 pm
Posts: 4
DoingHomework wrote:
I was wondering why someone who chose a nickname of "Champagne Tastes" would be asking about how to be even more frugal!


Ha! My husband has always chastized me for having Champagne tastes. We lived on a beer budget for the first 10 years of our marriage, and I've always had to decorate around my champagne tastes with a beer budget. Now we have more to spend, but we also have kids and aging parents--reasons that keep me financially timid, particularly about spending on things that are purely a matter of taste, like home decor.

I went with the big house in part because, of all of our family members, we now have the greatest financial resources. Our home is now a regular gathering place for our families. That give us great joy, so I don't regret the purchase. (Just like I don't regret buying a custom dining table last year that seats 14. It's the priciest furniture purchase I've ever made, but we regularly host family dinners of 12 or more, and it's been the best addition to our house.

I think you all have convinced me that, as long as we are living well within our means and saving appropriately, I should embrace this forever home and put my personal stamp on it--within reason.


Top
Offline Profile E-mail   
 Post subject: Re: Right way to downsize?
PostPosted: Thu Feb 23, 2012 6:24 pm 

Joined: Mon Feb 04, 2008 7:35 am
Posts: 1148
Location: Maryland
This is kind of an odd question because I normally only hear of people wanting to upgrade because of their friends, not downgrade.

a) You chose the house you're in because you are already in the good school zone, so why would you want to get a fixer-upper in the same school district? That will cost more money.

b) Your kids are going to grow, so why get a smaller house when things will get even tighter once they grow up?

Seems to me like you made the right decision. Keep your house, pay it down (or not), and just live more frugally like your friends if that's what is important to you. Your friends may have huge amounts of debt and HAVE to live frugally. You have champagne tastes and can afford champagne it seems, so keep up the good work! You never know what's behind others' reasons for being/living the way they are.


Top
Offline Profile   
 Post subject: Re: Right way to downsize?
PostPosted: Tue Feb 28, 2012 3:13 pm 

Joined: Mon Apr 25, 2011 7:37 am
Posts: 446
As others have alluded, the value of a house is not just what the mortgage balance is. I think what everyone should do is "right-size" their house.
You have value in your current home in that it is in a good school district, in good (and known) condition, large enough for both the growing kids and for family/friends gatherings. There are compelling reasons to stay in your house and I would, until one or more of those condition changes (no longer need to be in that school district, kids move out, retiring, dramatic change in financial situation). Until that time comes I would keep doing what you are doing.

We had a fixer upper and so all extra money went towards that. Towards the end I was getting so fed up with the way my house looked I did want to move. It really improved our quality of life to spend a fraction of what we were spending on fixing up the house, on furnishings, things such as non torn/mismatched kitchen chairs, a new wool rug, comfortable sleeper couch, new mattress. I don't mean go all crazy, but psychologically healthy to work some of those purchases into he budget.
Investigate whether a) refinancing would save money, and b)pay a little more off every month. It won't be as dramatic as getting a 15 year mortage but it may be the best of both worlds.


Top
Offline Profile E-mail   
Display posts from previous:  Sort by  
Post new topic Reply to topic  [ 13 posts ]  Moderators: kombat, bpgui, JerichoHill


Who is online

Users browsing this forum: No registered users and 5 guests


You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot post attachments in this forum

Search for:
Jump to:  
Powered by phpBB © 2000, 2002, 2005, 2007 phpBB Group
Theme created StylerBB.net & kodeki