Should I refinance even though I'm close to retirement?

Posted by  on Jan 05, 2011


Cutting expenses during your retirement years is important if you're going to be living on a fixed income. Take time to consider any choices that might affect your total financial picture, such as what to do if you are paying on a mortgage each month. Keep the following things in mind if you're wondering whether or not to refinance a mortgage.

  • Current mortgage rates are at historical lows. So if you have a high mortgage rate, a refinance could allow you to reduce your monthly payments and the total interest paid over the life of the loan. The best mortgage lenders take time to explain exactly how various mortgage programs work and what refinancing ultimately means to your wallet. Do not refinance without truly understanding what you're signing up for.
  • Try to get the shortest term you can afford. If you've been paying on your current mortgage loan for a long time, you may not have a large balance left. You could keep on making payments on the existing loan, or refinance into a much shorter term to take advantage of low interest rates.
  • The better your credit score, the better the mortgage rate you receive. So if you have spotty credit, you may want to take time to clean it up before applying to refinance. Paying off credit card debt and paying bills on time are just two things that can help improve your credit score.
  • If you need more income, a reverse mortgage might make more sense than refinancing. With a reverse loan you actually receive cash to use as you wish and do not make monthly mortgage payments. You need to have some home equity to qualify for a refinance, so if you're underwater, a reverse mortgage won't be an option. You also must be at least 62 years old to apply for a reverse mortgage.
  • Don't expect to get cash back at closing if you refinance. Even if you have a lot of equity, many mortgage lenders are reluctant to approve borrowers for cash-out refinancing. That's because the economy is still struggling and so many homes have lost significant value over the past few years. If you want to convert home equity into cash, a reverse mortgage may accomplish that better than a home refinance.
  • Will refinancing improve your financial situation in retirement? Any financial decisions you make from this point should account for your future needs and goals for the type of lifestyle you want. If necessary, have a retirement planning specialist put together a realistic plan for your retirement. If you are married, you and your spouse need to work together to plan a secure retirement.
  • How long do you expect to continue working? To make monthly payments on a refinanced loan you need enough income. It's a good idea to do this with income from a job, rather than use up retirement accounts to make house payments.

Take your time making financial decisions that can affect the qualify of your retirement lifestyle. In addition to shopping around for mortgage quotes, have a financial adviser do a thorough analysis of your finances so you can make the right decision about what to do with your money.



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