As you reach middle age, it may be time for you to start giving some serious thoughts to your retirement and any debt that may be accompanying you. Before you reach 65, it is a good idea to think about your financial situation and what you can achieve to ensure stress-free senior years.
Let’s take a look at why you should consider mortgage refinancing before the age of retirement.
Refinancing into a Shorter Loan Term
Your mortgage payment is probably the largest bill that you have to pay each month and you do not want to worry about it during your retirement days when you will not have any steady source of income. Fortunately, there are several mortgage loan programs available that with shorter loan terms that can be helpful to you.
By refinancing into a shorter loan term before you retire, you will be able to pay off your debt sooner and also have the opportunity to save thousands of dollars of accumulated interest.
Debt Consolidation
Credit cards charge you one of the highest interest rates out of financial products. The interest rates on credit cards could be 10% to 15% of the interest rate, which is often more than double that of mortgage rates. That is why people near the retirement age need to think about mortgage refinancing through debt consolidation. This works by combining more than one debt into a single payment but at a lower interest rate.
Consider this example: For every thousand dollars of mortgage financing, a person pays around four to five dollars. So if you borrow money at a lower rate, you can save more money in the long term and help individuals pay off higher debts quickly and efficiently.
Lower Interest Rates
These days, mortgage rates are not very high; however, you can still significantly lower your interest rates through mortgage refinancing, locking into a lower rate, and get incredible savings for yourself. This way, you will spend less money when borrowing and it can save you tens of thousands of dollars over the entire life of your loan.
The money you save can then be invested into your retirement accounts.
Should I Wait Until My Retirement Before Refinancing my Mortgage?
You can definitely wait until your retirement to refinance your mortgage. However, your income will most probably go down once you retire, so the best time to think about refinancing is before you leave your workforce, preferably when you are at the peak of your career.
When applying for a mortgage refinance, your bank or lending agency will look at your income to determine whether you have enough money to pay off the loan. They will also find out whether you have other existing debt that will interfere with your loan payment plans. Since you cannot depend on your employment income, it will be your pension and Social Security that will take the brunt of your mortgage.
On the other hand, if you do not want to refinance at the age of 62 or older, you also have the option to consider another loan program — the reverse mortgage. With this type of mortgage, your home equity will be enough to pay off your existing mortgage and will give you an added advantage of tax-free cash. This is an ideal way to make your retirement savings last for a longer time.
No matter the type of mortgage you choose, you get to decide your loan term. You do not need to add more years to your loan so that you can take advantage of a lower interest rate. Though there are a few costs required with refinancing, there are options available that can fit all sorts of financial budgets.
Consult with your financial advisor if you want to make smart decisions about your mortgage financing.