If you are a senior and are retired—or about to be—you may wonder if it would be a good idea to refinance your home. Doing so could lower your monthly payments and free up more of your retirement income to enable you to live more comfortably.
While getting a home refinance could benefit your financial situation, there are some things you need to know beforehand. They will help you make a more informed decision so there are no regrets later.
Second, refinancing makes sense if you can use some of your home’s equity to reduce or eliminate any debt you have with high interest rates.
Finally, if you are still paying private mortgage insurance (PMI), you can refinance to stop paying it.
Not Too Old to Refinance
Because of the Equal Credit Opportunity Act, lenders cannot discriminate against your age. That means you may be eligible for a 15- or 30-year mortgage. The primary concern lenders have, says TheMortgageReports, is whether you can meet the payments.Since you probably do not have any income reported on a W-2, you can show that you have other various sources of retirement income. These can include IRAs, 401(k)s, and other retirement assets. You will need to verify that you currently have access to the money in these accounts and that you can do so without penalties.
15- or 30-Year Mortgage?
When you refinance, you will be asked whether you want a 15-year or a standard 30-year mortgage. Both mortgages have advantages, but a 15-year mortgage will require considerably higher payments. It will also enable you to get out of debt sooner—if you can manage the payments and still have enough to live.A 30-year mortgage will enable you to decrease your monthly payments if you get lower refinance interest rates. It can make it easier to pay your monthly bills and medical expenses as you get older.
Other Options to Help Get Refinancing
Some banks and lenders may offer other options to refinance your mortgage, including:- Freddie Mac’s senior home-buying program;
- Fannie Mae’s senior home-buying program;
- Getting a co-signer; or
- Asset depletion loans. Since you have no regular income, this method uses your liquid assets and divides them by the months of the loan—360 months for a 30-year loan, for example. The result reveals how much monthly income you have per month to assess whether you qualify.
When Not to Refinance
If you are thinking of moving soon, it does not make sense to refinance. You want to be able to stay in your current home to recover the cost of refinancing before you move.Your credit score can also help you determine when you should not refinance. If you do not have good credit, you will not get a good deal when refinancing, but it also depends on what type of loan you want and where you get it.
When to Pay Off the Mortgage
Instead of refinancing, there are situations when you would do better by paying off your mortgage—such as if you have the money to do so, apart from your retirement money. You should only do so if you still have a sizeable retirement fund and money for emergencies and other unexpected costs.Alternatives to Refinancing
Instead of refinancing your home, you have some options concerning what you might do with your home’s equity. U.S.News suggests that you might downsize your home and invest your balance. When you downsize, you could move to a location with lower costs.Setting Up a Trust for Future Payments
RocketMortgage says you should not worry about dying before you have the refinance off. Your beneficiaries can always sell it if they need to.After you pass away and will your house to your beneficiaries, you can provide for future payments—if you are not sure your beneficiaries can. If you believe they will have to sell the house to pay off the mortgage, you can prevent the sell-off by creating a trust to cover the monthly mortgage payments and taxes.