Should you refinance your mortgage if you're retired?
Undertaking a mortgage refinance in retirement has both pros and cons. (iStock) Debt can be a source of stress in an otherwise restful retirement. According to the Federal Reserve Bank of New York, Americans in their 60s owed a collective $2.14 trillion in debt in 2019, while 70-somethings owed $1.1 trillion. Continue Reading Below Carrying mortgage debt into retirement can put a strain on your financial resources, particularly if your income drops significantly as you shift to living off your savings instead of drawing a steady paycheck. A mortgage refinance could help relieve the financial pressure. Deciding whether to go through with a mortgage refinance in retirement can depend on what you hope to gain. Wesley Botto, the partner at Botto Financial Planning & Advisory in Cincinnati, said saving money is the main reason to consider a mortgage refi in retirement. "Interest rates are very low and there's no reason not to evaluate whether a refinance could help reduce your expenses," Botto said. "The pure math side of it would typically tell you that you should refinance with current rates being below 3% and invest." Low record interest rates aside, you may refinance mortgage debt to tap into your home equity. According to ATTOM Data Solutions, 28.3% of mortgaged homes are "equity rich", meaning the estimated amount of loans secured by those properties was 50% or less of their estimated market value. Use Credible's free online tool to research different mortgage refinance lenders and see what your loan options are. HOW TO DECIDE IF YOU SHOULD REFINANCE YOUR MORTGAGE Taking out a new home loan to pay off your existing one could save you money if you qualify for a low mortgage refinance rates. The amount of savings can depend on your new loan's refinance rate and the loan term. Using an online mortgage refinance calculator can help you estimate your monthly costs and potential savings. Being able to withdraw equity could also be useful if you need cash for home improvements, medical expenses, or debt consolidation. With lenders offering low refinance rates, a cash-out refi could be an attractive debt consolidation option. Visit an online marketplace like Credible to view mortgage refi rates and get cash out to pay off high-interest debt. 3 MORTGAGE REFINANCING OPTIONS FOR THOSE WITH BAD CREDIT A refinance could save on mortgage costs, but it's important to weigh refinancing expenses. Those can include closing costs, which may run anywhere from 2% to 5% of the loan amount, as well as the adverse market fee. The 0.5% fee assessed by Fannie Mae and Freddie Mac is charged to lenders but mortgage refinance servicers can pass it on to borrowers in the form of higher interest rates. If you're subject to this fee, the added expense could nullify some savings associated with low mortgage refi rates. WHAT ARE THE HIDDEN COSTS OF REFINANCING A MORTGAGE? A side effect of the coronavirus pandemic is that banks are more closely scrutinizing mortgage borrowers when it comes to credit approval. Botto said retirees should understand how their credit scores may impact their ability to qualify for the best interest rates. It's also important to consider what kind of income mortgage lenders may require as proof that you can support mortgage payments after refinancing. This may include income from investments, annuities, and Social Security benefits. Most importantly, should shop around to compare options for mortgage refinance loans. "It makes sense to ask at least a few lenders," Botto said. "Let them compete for your business to make sure that you're getting the most competitive rates." You can visit Credible to compare mortgage refinance rates from multiple lenders. And you can get in touch with experienced loan officers to have all your mortgage refinancing questions answered. WANT THE LOWEST MORTGAGE REFINANCE RATES? DO THESE 4 THINGS NOW According to data from Freddie Mac, mortgage rates hit a record low in the first week of 2021. Here are U.S. weekly averages as of January 28: Compared to the same time last year, mortgage rates for 30-year and 15-year loans were down significantly when they closed at 3.51% and 3%, respectively. The 5/1 ARM rate is also significantly down over the same period of time when it was 3.24%. The new year marks the continuation of record-low interest rates. Mortgage interest rates dropped in 2020 in reaction to Federal Reserve efforts to minimize economic fallout from the coronavirus pandemic. That's been a boon for homebuyers and it's resulted in record low refi rates as well. Luckily, Credible makes it simple to compare mortgage rates. Click here to view today's featured refinance rates and view home loans based on APR, fees, and monthly payments depending on your loan amount. HOW TO LAND THE BEST MORTGAGE REFINANCE RATES Source: Read Full ArticleShould you refinance your mortgage if you’re retired?
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