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Refinancing your home after you retire can hurt your finances. (iStock)
People who plan to retire soon and have a mortgage with a higher interest rate should consider a number of factors before refinancing, such as how long they plan to live in the home and how long they plan to live in the home. impact this will have on their new budget.
Retirees often live on a fixed budget consisting of money saved in various retirement and social security accounts.
Multi-lender sites such as Credible can help you weigh the pros and cons of home refinancing. Specifically, Credible can compare multiple lenders and refinance rates on one screen so you can see if you can save money and reduce the life of your loan throughout the process.
Before refinancing a mortgage, homeowners who plan to retire in a year or two should consider these factors:
- Affordable loan payment
- Refinancing costs
- Refinance with the same lender
- Keep money on hand
1. Affordable loan payment
Retirees should determine the amount of their new monthly mortgage payments (as well as taxes and insurance) in the future before refinancing. Property taxes and home insurance also increase over time.
All homeowners, regardless of age, should shop around for lower rates. Use Credible to find some of the best deals.
EVERYTHING YOU NEED TO KNOW ABOUT MORTGAGE REFINING
Retirees also need to consider their future financial situation and health care needs to determine if getting another 30-year loan makes more sense than a 15-year loan in terms of monthly payments. While a 15-year mortgage has lower costs, in the long run, homeowners will have to shell out a higher payment each month.
“Make sure you stay in your home long enough to break even for the refinancing fee before you make a decision,” said Leslie Tayne, a Melville, NY debt attorney.
A retiree could consider a longer loan term and make additional payments to shorten the repayment period as long as it works with their new budget, she said.
Today’s refinance rate
- 15-year average refinance mortgage: 2.65%
- Average refinancing mortgage over 30 years: 3.14%.
To understand how much you could save on monthly mortgage payments by refinancing now, calculate the numbers and compare rates using Credible’s free online tool. Within minutes, you can see what many mortgage lenders are offering.
WHY IT’S A GOOD IDEA TO REFIN YOUR MORTGAGE WHILE RATES ARE LOW
2. Refinancing costs
Closing costs typically consist of 2% to 5% of the mortgage amount. While most mortgage lenders include these fees in a refinance mortgage, consider whether it’s worth spending thousands of dollars once you’re retired and living on a fixed income.
Plan to spend $ 5,000 to $ 10,000 to refinance, but that amount varies, Tayne said.
“Many banks allow consumers to include these costs in the new loan and that can mean taking out a larger loan than before and reducing equity,” she said. “Applicants should keep their loan-to-value (LTV) ratio in mind to see how including these costs would work with their income.”
Ask yourself if the home is affordable after you retire, especially if your budget is limited, Tayne said. Keeping your current home may not match your new budget, even with refinancing.
“The consideration may be to reduce housing expenses by selling the house,” she says.
If you are considering refinancing, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see pre-qualified rates in as little as three minutes.
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3. Refinancing from the same lender
Consider refinancing with the same lender, as you could probably save money on some of the costs. Some lenders are willing to waive fees such as appraisal or application fees for current borrowers. Shop around before making a decision, as lenders change their options frequently.
“You may want to consider refinancing with the bank you already have the loan with, instead of going to other lenders, which could drive costs down,” Tayne said.
If you have an estimate of your closing costs, use an online mortgage refinance calculator to determine the new monthly fees.
HOW TO REFINE YOUR MORTGAGE
4. Keep cash on hand
Not pouring much of your money into your home can be a wise move once you retire, said Daren Blonski, managing director of Sonoma Wealth Advisors in California. Since the amount of your disposable income decreases once you stop working, it may be a good idea to have extra cash for home renovations, medical bills, travel or other expenses instead of making payments. additional mortgages.
“Tying all your money in a house is not a good idea, especially if you haven’t saved enough for retirement,” he said. “If you’ve saved enough money for retirement, you can put your extra money into a CD or short-term bond ETF such as the JPMorgan Ultra-Short Income ETF (JPST),” he said. declared.
Homeowners are often lulled into a false sense of security once a home is paid off because they still have to budget for property taxes, insurance, and maintenance costs.
It’s important for retirees to keep your costs low when you’re on a fixed income. Refinancing can lower your monthly payments. Researching current mortgage rates can help you decide if refinancing is the right choice for you and your financial situation.
Visit Credible to connect with experienced loan officers and get your mortgage questions answered.
HOW TO OBTAIN THE BEST MORTGAGE REFINANCE RATES
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