Should You Downsize Your Home in Retirement? An Ontario Guide

The Downsizing Conversation Comes Up in Almost Every Retirement Plan

I sit down with couples and individuals in London, Ontario every week to build retirement plans. At some point in the conversation, almost everyone says some version of this: "We've been thinking about selling the house. The kids are gone, the yard is too much, and we don't need four bedrooms anymore."

It sounds simple. Sell the big house, buy something smaller, pocket the difference, and use it to fund retirement. The idea is appealing because it feels like free money. Your home has appreciated over 20 or 30 years, and now you can cash in.

But downsizing is not as straightforward as it looks on paper. The financial benefits are real, but so are the costs, the tax implications, the lifestyle trade-offs, and the emotional weight of leaving a home you have lived in for decades. I have seen clients who saved hundreds of thousands by downsizing at the right time. I have also seen clients who rushed into it and ended up with less financial benefit than they expected after all the transaction costs.

This is the complete Ontario guide to making the downsizing decision with your eyes open.

When Downsizing Makes Financial Sense

Downsizing works best when there is a meaningful price gap between what you are selling and what you are buying. If you sell a detached home in London for $650,000 and buy a condo for $350,000, you have freed up roughly $300,000 before transaction costs. That is a significant amount of capital that can be invested or used to eliminate debt.

Here are the situations where downsizing tends to make the most financial sense:

• Your home is worth significantly more than what you need. If you are sitting in a four-bedroom detached home worth $600,000 to $800,000 and you only need a two-bedroom condo or bungalow, the spread can fund years of retirement income.
• You have limited retirement savings. If your RRSPs, TFSAs, and pensions are not enough to cover your lifestyle, your home equity may be the gap filler you need.
• Maintenance and carrying costs are eating into your budget. Property taxes, insurance, utilities, repairs, and landscaping on a larger home add up. In London, annual carrying costs on a detached home can easily run $15,000 to $25,000 depending on the property.
• You want to eliminate your mortgage. If you still carry a mortgage into retirement, selling and buying something smaller with cash removes that monthly payment entirely. For context, see our breakdown on whether paying off your mortgage or investing makes more sense.
• Your health or mobility is changing. A two-storey home with stairs, a large yard, and winter shovelling may not be practical in your 70s and beyond. Moving earlier, on your terms, is better than being forced to move later.

The Principal Residence Exemption: No Capital Gains Tax

This is the single biggest financial advantage of selling your primary home in Canada. Under the principal residence exemption, the capital gain on the sale of your home is completely tax-free, provided it was your principal residence for every year you owned it.

There is no limit on the gain. If you bought your London home for $180,000 in 1998 and sell it for $700,000 in 2026, the $520,000 gain is entirely exempt. You do not owe a dollar of capital gains tax on it.

A few important rules:

• One principal residence per family unit per year. You and your spouse can only designate one property as your principal residence for any given tax year. If you own a cottage or rental property, the exemption math gets more complicated.
• You must report the sale. Even though the gain is tax-free, you are required to report the disposition of your principal residence on your tax return (Schedule 3 and Form T2091). Failing to report it can result in penalties.
• The property must have been your principal residence. If you rented out part of the home, used it primarily for business, or it was not your primary residence for certain years, a portion of the gain may be taxable.

For most Ontario families selling their long-time family home, the principal residence exemption means the full proceeds are yours to keep. This makes real estate one of the most tax-efficient assets to liquidate in retirement. If you want to understand how this fits into your broader tax plan, that is worth a dedicated conversation.

The Costs of Selling: They Add Up Fast

The proceeds from your home sale are not all profit. Transaction costs in Ontario are significant, and I find that most people underestimate them.

Real Estate Commission

The standard real estate commission in Ontario is typically 4 to 5 percent of the sale price, split between the listing and buyer's agents. On a $650,000 sale, that is $26,000 to $32,500 plus HST on the commission. This is often the single largest cost of selling.

Some sellers work with discount brokerages or negotiate lower rates. That is worth exploring, but factor in the service level and marketing exposure you are giving up.

Legal Fees

You will need a real estate lawyer for both the sale and the purchase. Expect $1,500 to $3,000 for each transaction, so $3,000 to $6,000 total for the round trip.

Land Transfer Tax (On the Purchase)

Ontario charges land transfer tax on the purchase of your new home. The tax is calculated on a sliding scale:

• 0.5% on the first $55,000
• 1.0% on $55,001 to $250,000
• 1.5% on $250,001 to $400,000
• 2.0% on amounts above $400,000

On a $350,000 condo purchase, the Ontario land transfer tax would be approximately $3,725. If you are buying in Toronto, there is an additional municipal land transfer tax on top of this. London does not have a municipal land transfer tax, which is one advantage of buying locally.

Moving Costs

A local move in London typically runs $2,000 to $5,000 depending on the size of the home and whether you need storage. Long-distance moves are significantly more.

Home Preparation and Staging

Getting your home sale-ready often involves painting, minor repairs, decluttering, and staging. Budget $3,000 to $10,000 depending on the condition of the home.

The Total Damage

For a typical London downsizing scenario, selling a $650,000 home and buying a $350,000 condo, total transaction costs often land between $40,000 and $55,000. That means your net equity freed up is closer to $245,000 to $260,000, not $300,000. Still a meaningful amount, but the gap between gross and net surprises people.

What to Do with the Proceeds

Once you have freed up capital from downsizing, the question becomes where to put it. The answer depends on your overall retirement income plan and current account balances.

Max Out Your TFSA

If you and your spouse have unused TFSA contribution room, this is the first place to look. In 2026, the cumulative TFSA contribution limit for someone who was 18 or older in 2009 and has been a Canadian resident throughout is $102,000 per person, or $204,000 for a couple. Many retirees have not fully utilized their TFSA room.

Money inside a TFSA grows tax-free and withdrawals are tax-free. It does not affect your OAS clawback, GIS eligibility, or any income-tested benefits. For a detailed look at how to use your TFSA in retirement, read our TFSA withdrawal strategy guide.

Invest in a Non-Registered Account

If your TFSA and RRSP room is fully used, the remaining proceeds go into a non-registered investment account. The key here is to invest tax-efficiently: Canadian dividend-paying stocks and equity ETFs benefit from the dividend tax credit and preferential capital gains treatment. For guidance on building a low-cost, tax-efficient portfolio, see our investment management approach.

Pay Off Debt

If you carry any debt into retirement, whether it is a mortgage on a new property, a line of credit, or car loans, eliminating it with sale proceeds can make sense. Debt-free retirement means lower monthly expenses, which means you need less income from your portfolio and government benefits.

Build a Cash Reserve

Keep one to two years of living expenses in a high-interest savings account or GICs. This cash buffer prevents you from having to sell investments during a market downturn to cover expenses. Having a buffer is especially important in the first few years of retirement.

Impact on Your Retirement Income Plan

Downsizing does not just change your net worth. It changes your entire cash flow picture in retirement. Here is how:

Lower carrying costs. Moving from a detached home to a condo or smaller bungalow typically reduces property taxes, insurance, utilities, and maintenance. In London, property taxes on a $350,000 condo might run $3,000 to $3,500 per year compared to $4,500 to $6,000 on a $650,000 detached home. Savings of $5,000 to $10,000 per year in total carrying costs are common.

More invested assets. The $200,000 to $260,000 in freed-up equity, invested at a reasonable 5 percent average annual return, generates $10,000 to $13,000 per year in portfolio income. That can meaningfully extend how long your savings last and become a key component of your retirement income plan.

Reduced withdrawal rate. With a larger investment portfolio and lower expenses, your annual withdrawal rate drops. A lower withdrawal rate is the single most important factor in making sure you do not run out of money. If you are working through the numbers, our retirement planning checklist walks through each piece.

Potential GIS or OAS implications. If downsizing moves you from a position where you had large RRIF withdrawals to one where you have more TFSA and non-registered income, it can reduce your net income for OAS clawback and GIS eligibility purposes. This is a meaningful benefit for lower-income retirees. Our OAS optimization guide covers strategies for keeping your income below the clawback threshold.

To see how all of these pieces interact for your specific situation, building a proper financial plan is the most reliable way to get clarity. Our retirement planning page explains how we approach this.

Renting vs. Buying Smaller

Not everyone who sells needs to buy again. Renting in retirement is a legitimate strategy, and in some cases it is the better financial move.

The Case for Renting

• Maximum capital freed up. If you sell a $650,000 home and rent a two-bedroom apartment in London for $1,800 to $2,200 per month, you have the full net proceeds (minus transaction costs) to invest.
• No maintenance, no property tax, no surprise repairs. Your monthly housing cost is predictable.
• Flexibility. You can move more easily if your needs change, whether that is relocating to be closer to family, downsizing further, or moving to a retirement community.

The Case for Buying

• Inflation hedge. When you own, your housing cost is relatively fixed (property taxes and maintenance increase, but there is no rent increase). Rents in London have climbed steadily over the past decade.
• Forced savings. Owning builds equity, even in a condo. That equity is available later if you need to sell again for long-term care or other expenses.
• Stability and control. You are not subject to a landlord's decisions about renovations, selling the property, or raising rent beyond the guideline amount.

What I Tell Clients

There is no universal right answer. For clients in their early 60s with a 25 to 30 year retirement ahead, buying a smaller property usually makes sense because it locks in housing costs and provides a backstop asset. For clients in their mid-70s who want maximum simplicity, renting often wins. The math depends on your specific retirement income, health, and preferences.

Condo Fees and the Hidden Costs of Smaller Living

If you are considering a condo, understand that the purchase price is only part of the story. Monthly condo fees in London range from $350 to $700 depending on the building, age, and amenities. That is $4,200 to $8,400 per year on top of your mortgage (if any) and property taxes.

Condo fees cover common area maintenance, building insurance, reserve fund contributions, and sometimes utilities like water and heat. But they can increase, sometimes significantly, if the building needs major repairs or the reserve fund is underfunded.

Before buying a condo, review the status certificate carefully. This document tells you the financial health of the condo corporation, including the reserve fund balance, any planned special assessments, and any pending litigation. A condo with a healthy reserve fund and low fees is a very different proposition from one with a depleted reserve fund and a special assessment on the horizon.

Also consider lifestyle changes. You may be trading a yard and a garage for shared amenities, closer neighbours, and condo rules about noise, pets, and renovations. Some people thrive in condo living. Others feel confined. Visit buildings, talk to residents, and spend time in the neighbourhood before committing.

London, Ontario Housing Context

London offers a distinct advantage for retirees considering downsizing: it remains one of the more affordable mid-sized cities in Ontario. While the Greater Toronto Area has seen detached homes average well above $1 million, London's average home price has generally stayed in the $550,000 to $700,000 range, depending on the neighbourhood and market conditions.

This matters for downsizing because the price spread between a detached home and a condo or townhouse in London is often large enough to free up meaningful capital. A detached home in Old North, Masonville, or Byron might sell for $650,000 to $850,000, while a well-maintained condo in the same area could be purchased for $300,000 to $450,000.

London's rental market has also tightened in recent years, with vacancy rates dropping and rents climbing. If you are considering renting rather than buying, factor in that rents may continue to increase. A two-bedroom apartment in a desirable area of London currently runs $1,800 to $2,400 per month.

For retirees thinking about staying in the London area, there are also newer retirement-oriented communities and bungalow developments in areas like south London and surrounding communities like St. Thomas and Strathroy that offer maintenance-free living at lower price points.

If you want a broader picture of what retirement costs look like in this area, our guide on how much you need to retire in London, Ontario covers the full breakdown.

Emotional Considerations: The Part Nobody Talks About Enough

I would be doing you a disservice if I only talked about the money. Downsizing is an emotional decision as much as a financial one.

Your home is where you raised your kids, hosted holidays, and built decades of memories. Leaving it can feel like closing a chapter of your life, and that feeling is real and valid regardless of how good the numbers look.

Here is what I have observed working with clients through this process:

Give yourself time. The clients who are happiest with their decision are the ones who started thinking about it a year or two before they actually moved. They had time to sort through belongings, say goodbye to the space, and get excited about what comes next rather than feeling rushed.

Involve your family. Adult children often have strong feelings about the family home. Having the conversation early avoids surprises and gives everyone time to process.

Separate the financial decision from the emotional one. Sometimes the financial case for downsizing is overwhelming. Other times, the financial benefit is modest and staying put is perfectly reasonable. Knowing the numbers helps you make the decision with clarity rather than anxiety.

Try before you commit. If you are considering a condo or a specific neighbourhood, rent in the area for a few months first if possible. Some clients discover they love the freedom of condo living. Others realize they miss having a yard and a workshop.

Timing the Sale

When you sell matters, both for the real estate market and for your tax and retirement income plan.

Market Timing

Nobody can perfectly time the real estate market, and I would not suggest trying. But selling in a reasonable market is better than selling in a panic. If you are planning to downsize in the next two to three years, start watching comparable sales in your neighbourhood now. Talk to a local real estate agent about pricing and timing.

Spring and early fall tend to be stronger selling seasons in London. Listing in January or November typically means fewer buyers and potentially a lower price.

Tax Year Timing

If you are selling and investing the proceeds, the timing of the sale affects when investment income starts flowing. Selling in December versus January can push a full year of investment income into the next tax year, which might matter for OAS clawback calculations or income-tested benefits.

Retirement Plan Timing

Ideally, the sale happens as part of a comprehensive retirement plan rather than as a standalone decision. When we build retirement plans for clients, we model the downsizing scenario alongside the stay-put scenario. We look at how each option affects your cash flow, taxes, investment growth, and estate value over a 25 to 30 year horizon. That comparison makes the decision clear.

The Bottom Line

Downsizing your home in retirement can be one of the most impactful financial moves you make. It frees up capital, lowers your carrying costs, and gives you flexibility to invest, travel, or simply sleep better at night knowing your savings will last.

But it is not a decision to make based on a back-of-the-napkin calculation. The transaction costs are real, the lifestyle implications are significant, and the interaction with your retirement income, taxes, and government benefits is more complex than most people realize.

If you are thinking about downsizing as part of your retirement plan, or if you just want to see the numbers before making any decisions, I am happy to walk through it with you. As a financial advisor in London, Ontario, I work with clients on exactly these kinds of decisions every day. We build the plan, run the scenarios, and figure out what actually makes sense for your situation.

You can reach out here to start the conversation.