Moving down in an "up" market may be to your advantage in multiple ways. It is possible that your present home doesn't meet your current needs like it once did. Making a move can allow you to "re-balance" the equity in your home to better reach your future goals.
The "up" market maximizes the sales price you can expect to receive, and it will free the equity in your home. A lower priced home will result in reducing your housing costs with lower property taxes, insurance, utilities, and maintenance...while improving your liquidity position.
It is not required to reinvest the proceeds of the sale. You may decide to get an 80% loan-to-value mortgage on the replacement home to get the best interest rate and avoid private mortgage insurance. This would allow you to put the excess proceeds into an income producing or growth investment, start a business, fund an education, buy a second home, take a spectacular trip, gift a down payment to a relative, or any other different projects.
The expression "other people's money" describes borrowing money and using it to invest with the expectations of earning more than the rate you're paying. Mortgage interest is one of the most attractive ways to borrow money because it is generally the lowest rate compared to other types of loans while having the option to get a fixed-rate mortgage for up to 30 years. Most other borrowed funds involve short terms and floating interest rates.
Rental real estate could be a possibility to invest part of the funds. There is a shortage of available rentals which has caused rents to increase like homes have appreciated. Single family homes for rentals provide large loan-to-value mortgages at fixed interest rates for long terms on appreciating assets with defined tax advantages and reasonable control not found in many other investments. For more information, download our Rental Income Properties Guide.
Homeowners who have owned and occupied their principal residence for two of the last five years are entitled to exclude up to $250,000 of gain for single persons and $500,000 of gain for married persons filing jointly. For more information, see IRS topic #701.
Contact your real estate professional to find out more information like potential sales price, what net proceeds you can expect to receive on a sale, available replacement homes, and the types of mortgages and rates available.
