Should You Refinance? A Common Mortgage Question for Older Borrowers

We refinance plenty of borrowers in their 50s and 60s. For those looking to refinance and are nearing retirement within the next ten years or so, it may be worthwhile to review your retirement funds and think about paying off your mortgage first.

A preliminary step would be to analyze your financial situation and determine what lifestyle you want in retirement. You may want to stay in your home and pass it on to your heirs, sell it and downsize or keep the house and use it as rental income for retirement. If you plan on moving and selling your home in the near future, refinancing may not be advantageous because you may not have enough time to recoup the costs. Eliminating a mortgage payment before retirement would improve cash flow and be ideal; however, some financial investors argue that if you are paying extra money every month to buy down your mortgage balance, it may be wise to invest that money instead.

Another item to think about is refinancing into a shorter-term loan. For example, you should research lenders who will offer a 10-year loan or specific terms that match the year you intend to retire and make sure you calculate how much money you would save. If refinancing means it would take more to recover closing costs and transaction fees it may not be worthwhile.

For those with minimal retirement savings, it may not be worth refinancing into a shorter-term loan because the higher monthly payments could further reduce the ability to save. If you are a few years away from paying off your mortgage, the cost of refinancing could deplete savings and you should avoid paying points to reduce your mortgage interest rate. Choosing to refinance is most beneficial when you can significantly reduce your monthly payments and invest those savings to generate future retirement income.