Refinancing a home when your 30 isn't the same as refinancing when you're 60. Younger people are more likely to move to another home more often than older homeowners, so may be in a position to take advantage of adjustable-rate or hybrid ARM mortgages. Older homeowners may be more settled and may be planning to stay in a home until (and possibly after) retirement. Here are some things to consider when doing a home refinance as you get older.
15 years vs. 30 years
The older you are, the less time you probably want to spend paying off a mortgage. Don't automatically go for a 30-year fixed rate mortgage, especially if you've been paying on your current mortgage for 10 years or more. It may make more sense to refinance into a 15-year fixed rate mortgage so you can pay if off faster. Getting a mortgage with a shorter term also means you'll pay less interest over the life of your loan, which can help you save more cash for retirement.
Compare mortgage rates
Shop around to compare mortgage rates from several mortgage lenders to find the right refinance deal. Look at the various closing fees involved with refinancing, and ask if any of them can be waived or reduced. Ask whether or not the best refinance rates require you to pay points. Get a Good Faith Estimate (GFE) from each lender so that you can compare actual rates and not advertised rates. When looking at the various fees and closing costs, use a refinance calculator to find the break-even point for recouping the money you put out.
Cash-out vs. cash-in refinancing
Older borrowers also should be cautious about pulling cash out of their homes when refinancing. While converting some home equity to cash can put money in your pocket now, this may not be the smartest financial strategy if you are trying to save for retirement. Homeowners in their 40s and 50s should aggressively save for retirement. Taking money out of your home when refinancing means you'll have larger monthly payments to pay a mortgage loan back than if you don't take cash out.
If paying off your mortgage as quickly as possible is important to you, consider cash-in refinancing. When you refinance this way you actually bring cash to the closing to boost your home equity. Some homeowners are using cash-in refinancing to raise their home equity above the 20% threshold and avoid paying mortgage insurance (MI). Others are finding that because housing values have dropped over the past few years, they can't get approved for a mortgage without bringing cash to the table.
Lowest mortgage rates on record
America is experiencing some of the lowest mortgage rates ever, so take the time to determine if a home refinance can help your financial situation. But if you are an older homeowner, it makes sense to look at the bigger picture and make decisions that can help you put away as much money as possible for retirement while taking care of other financial obligations.