Posted byon April 2, 2009
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After a lot of thought, we made our decision. We will not be downsizing.
Ironically, I envisioned dollars falling from the sky by selling our house and buying one for about $150,000 – $200,000 less. You would think that would be the case, right?
Wrong. I put together a spreadsheet to compare the different scenarios. The first option is to sell our current house, and buy a new one for less. The second option is to stay put.
Savings. Our mortgage payment would drop by $500-$700 a month and we would have lower taxes, utilities, and homeowners dues associated with a less expensive house. In addition, I assumed that with the extra cash out and the savings each month, we’d put it in savings or CD’s to earn interest.
Expenses. We would have to pay Realtor fees to sell. We would incur upfront closing costs and the cost to move. In addition, the lower loan payment would also mean less tax savings since we itemize.
Appreciation. Our area has been seeing 1% appreciation per year over the last few years while other areas had significant depreciation. I actually did projections for each appreciation rate, negative and positive, just to make sure I wasn’t skewing the numbers in my favor. The more positive the appreciation, the lower our savings.
Get this! If we look at the difference 5 years from now… Our savings would be less than $140 per month. What appeared to be a significant monthly savings in mortgage payment, was all but eaten up by other costs and factors.
We asked ourselves this question before: “We love our house and our neighborhood, but we’re trying to decide if it’s really worth the premium we pay to live here. Would we be just as happy in a smaller house?”
Now we know our “premium” is only $140 for great schools, a fabulous neighborhood, and a house built exactly to our specifications for our growing family. We can finally answer, yes, it’s worth it. And we’ll be staying!
This was a very valuable exercise to complete. I’d recommend that anyone considering a similar decision sit down and lay out all the savings and expenses. Don’t be fooled by a lower mortgage payment; account for all the financial factors.
Once you determine the true financial impact, you can evaluate it based on your non financial criteria. We are now very happy in our house, knowing it really isn’t that expensive after all!