Many financial planners will encourage you to pay off your mortgage while you are still working so you can live your life debt-free. Rarely do people get any tax benefits from carrying a mortgage into retirement. Paying it off is ideal, but unfortunately that isn’t always an option for most. If you are going to carry a mortgage into retirement, it’s good to have a plan be the ensure you don’t empty your savings in the process. Consider a mortgage refinance. There are several benefits.
According to Federal Reserve’s Survey of Consumer Finances, 35% of people between the ages of 65-74 still owe money on their home. People around this age are usually retired or about to retire, therefore, must dip into their retirement funds to help cover their mortgage payments. Unfortunately, this reduces the amount of money retirees must live on, because it can trigger more taxes.
But don’t make the mistake of rushing to pay off your mortgage while you have the steady income. Even if you have enough money in your savings, it’s best to spread it out and pay off the mortgage over time. While it may seem like a good idea, you could end up short on cash for life emergencies or other living expenses.
Also, making a big withdrawal like this can have you paying a lot more on your taxes. Even if you have the money, it is best to spread it out to keep your future taxes down and get a better return on your money by taking other avenues.
A Mortgage Refinance Might Be Your Answer
Paying off a home simply isn’t possible for many in retirement. This best option if you are in this situation is to refinance your home. Refinancing your home is easier to do before you retire and can spread your remaining mortgage balance over a 30-year span. The result could be a lower monthly mortgage payment.
A mortgage refinance can provide a number of benefits. These will vary from borrower to borrower, depending on what they’re looking to achieve. A refinance will generally provide one or more of the following:
- A Better Mortgage Rate – Mortgage rates may be lower now. You can often save money by refinancing your mortgage into a new home loan at current rates. Or perhaps your credit situation has improved, so you’re eligible for a lower rate.
- Lower Monthly Payments – With a lower interest rate, you can get lower monthly payments. You can also lower your monthly mortgage payments by extending your payoff date past what it is currently. You will be paying less in principle each month.
- More Predictable Costs – If you currently have an Adjustable Rate Mortgage (ARM), you may choose to refinance to a fixed-rate loan. This locks in your rate for the remainder of your mortgage. That way, you don’t have to worry about your monthly payments increasing if rates should rise.
- Shorten Your Term – Many borrowers start out with a 30-year home loan. Then they refinance to a 15-year fixed-rate mortgage after a few years. This allows them to pay the mortgage off faster and save money in interest over the life of the loan.
- Borrow Money – With a cash-out refinance, you can borrow against your home equity to obtain funds for any purpose. You receive a check at closing, the amount of which is added onto the mortgage principle you owe.
More mortgage refinance options
But, you know, those aren’t the only benefits you might accrue. Some others, like the following could be options you want to explore.
- Consolidate Debts – Use a cash-out refinance to pay off other debts to save money on interest and reduce your total monthly payments.
- Combine Two Mortgages into One – You can combine a second mortgage or home equity line of credit into a single primary mortgage at a lower rate.
- Cancel Mortgage Insurance – If you have lender-paid mortgage insurance, you can eliminate it. Refinance once you reach 20 percent equity to eliminate the premium that’s built into your interest rate.
- Remove a Person from a Mortgage – Sometimes an original loan signer no longer must be held financially responsible for the loan. The only way to get them off the mortgage is by refinancing.
- Other Benefits – Pulling cash out for repairs or it could help pay for your kids’ college.
Knowing how you are going to handle a mortgage in retirement takes some thought and planning. A mortgage refinance might be the financial answer you seek. Contact me now to learn about how you can refinance your home today.
Gary