As you approach retirement, you probably have three primary goals in mind:
- Maximizing the value of your assets.
- Reducing your expenses.
- Generating cash flow.
It’s likely that your home is one of your most valuable assets. If you’re still paying off a mortgage, refinancing is an option that can help you meet all three of these goals.
Refinancing Your Home
Refinancing involves exchanging your current mortgage loan for a new one that will pay off the current loan’s debt. Typically, homeowners refinance to take advantage of more favorable insurance rates, switch to a fixed rate, or extend their loan’s terms.
Once you’ve decided to refinance your home, you’ll effectively follow the same steps you took to take out your current loan. You’ll determine your priorities, identify a lender, and apply for a restructured loan.
Pros and Cons
A new mortgage loan can improve your pre-retirement finances in a number of ways. If you opt for a lower interest rate or longer term, for example, you’ll likely face lower monthly payments. Lowering your interest rate could also mean a lower total cost.
Reducing or extending the lifetime of your mortgage can also help seniors better manage their finances. A longer loan will mean smaller monthly payments, while a shorter loan allows you to eliminate the burden of monthly payments more quickly.
Both options also have their potential drawbacks. Seniors who choose longer-term loans need to consider how long their savings will last. Even with reduced mortgage payments, years and years of expenses will add up. It’s important to consider whether your savings and Social Security benefits will sustain you throughout retirement. Short-term loans can backfire if unexpected expenses make monthly payments unmanageable.
Refinancing is often especially appealing to seniors with rising medical costs. Reducing monthly rates puts much-needed cash back into their pockets to address services that Medicare doesn’t cover.
Questions to Ask
Refinancing isn’t a decision to make lightly. Work alongside a trusted financial professional to answer the following questions:
- How many years are remaining on my current mortgage?
- Do I plan to leave my home to my children?
- What are my goals after refinancing?
Still need help answering these questions? Reach out to Green Settlements to learn more about saving in retirement.