Part of the American dream is the idea that you work hard and then retire with enough money in the bank and home free and clear of a mortgage. But with the economy in shambles and retirement funds dwindling, many senior citizens find themselves saddled with high-interest debt and mortgages they're struggling to pay. If you're over 55 and still paying on a mortgage, you may be wondering if it makes sense to refinance since the U.S. is experiencing some of the best mortgage rates in history.
What does age have to do with it?
While the actual refinance process is basically the same regardless of your age, there are some factors seniors should consider before applying for a mortgage.
How long do you plan to remain in your home? Refinancing could make good financial sense if it lowers your interest rate and payment, but it's important to decide whether or not you plan to remain there long enough to recoup the cost of refinancing. If you really want to downgrade your lifestyle and not be saddled with your current house, refinancing might not be the right move at this time.
Are you in good health? You need someplace to live and might as well remain in your current home if you are satisfied being there. But if you have a major illness and believe that you may need to move to an assisted living facility or nursing home in the near future, spend some time checking out the costs before applying for a mortgage to refinance.
Are you on a fixed income? If so, your money is only going to go so far when paying monthly bills. Healthy, active seniors who work full- or part-time may be in a better position to keep up with monthly mortgage loan payments. It's also going to be easier to qualify for a mortgage if you have a regular income and good credit.
Do you have home equity?
One of the biggest factors affecting anyone who wants to refinance these days is whether or not you have any home equity. If you are underwater, you should consult with a housing counselor and/or your mortgage loan servicer if you are struggling to keep up with monthly payments. The more home equity you have, the more favorably lenders are going to view your mortgage application.
What about reverse mortgages?
Some seniors are choosing reverse mortgages over refinancing. Here's why. Reverse mortgages allow people who are 62 and older to convert some of their home equity to cash. You receive money from the reverse mortgage lender instead of having to make monthly payments as you would with a refinance. The loan must be paid back when you leave the home. Counseling is required before you can actually apply for a reverse mortgage.
Refinancing has pros and cons. Take time to evaluate your situation carefully in this tricky economy before approaching lenders to compare mortgage quotes.