While homeowners across the country are jumping at the chance to refinance into a mortgage with a lower interest, older homeowners should weigh their choices carefully and take their retirement planning into consideration.
Age 50 or older? Consider your mortgage options carefully.
Traditionally, financial experts recommend that homeowners pay off their mortgage before they retire in order to reduce their expenses. These days, about fifty percent of seniors retire with a mortgage, according to the Society of Actuaries.
Retiring with a mortgage -- not as bad as it seems
Refinancing into a new 30-year mortgage after age 50 may lower your monthly payments, but it will also likely extend your loan beyond retirement age. Financial experts say that while being debt-free at retirement is worthy goal, for some people, refinancing makes sense, as long as they consider a few factors that should influence their decision:
- Planning to move? If you plan to move in less than three years, you are not likely to recoup the costs of refinancing.
- Do you intend to invest your extra savings from a refinance? You might be better off paying down your mortgage loan and other debt, particularly if you are less than a decade away from retirement.
- Do you have other debt? If so, refinancing to reduce your monthly expenses and using the extra cash to pay other debt more quickly could be worthwhile.
Reverse mortgage option
Homeowners age 62 and older have another option available: a reverse mortgage. Smart Money Magazine says that the number of federally-insured reverse mortgage loans increased by 166 percent from 2005 to 2009. In 2010, many lenders have reduced some of their fees to encourage more seniors to apply for a reverse mortgage loan.
A reverse mortgage can be used in a variety of ways to assist homeowners who have significant home equity but little cash. Seniors can use a reverse mortgage to pay off an existing mortgage or other debt if accessed as a lump sum, or they can opt for monthly income to pay for basic needs. Another option is to use a combination of a lump sum and monthly payments.
Credit counseling is required for reverse mortgage loans in order to make sure the homeowners understand their loan and make the right choice for their financial needs. To determine whether refinancing or a reverse mortgage makes sense for you, consult with a lender or financial planner.
Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance and business. Her clients include The Washington Times, Urban Land Magazine, NAREIT's Real Estate Portfolio, and numerous Realtor association publications. Michele's first book,