Can We Afford to Buy a Smaller Home Outright by Selling Our Current One?
It may be possible, depending on the legal, financial, and property details involved. Whether downsizing can eliminate a mortgage entirely depends on the specific math between current home equity and the target smaller home's price.
Calculating available equity
Current home equity is the sale price minus the remaining mortgage balance and selling costs, typically 8-10% of the sale price for agent commissions and closing costs, giving a realistic net proceeds figure to work with.
Comparing net proceeds to the target purchase price
If net proceeds from the sale meet or exceed the price of the smaller target home, buying outright, with no new mortgage at all, becomes possible, eliminating a monthly housing payment entirely aside from taxes and insurance.
The financial benefit of eliminating a mortgage in retirement
Entering or approaching retirement without a mortgage payment significantly reduces the fixed monthly expenses that need to be covered by retirement income, a meaningful benefit worth prioritizing even if it means choosing a smaller or less expensive target home than might otherwise be preferred.
What to do with proceeds beyond the purchase price
If net proceeds exceed the cost of the smaller home, deciding in advance how to allocate the remainder, retirement accounts, an emergency fund, or other investments, prevents that leftover cash from simply being absorbed into general spending without a clear plan.