Who doesn’t dream of a leisurely life when they retire? Most of us dream of spending our golden years with days playing golf, playing with our grandchildren, on month-long vacations in the tropics or spending a sunny afternoon over tea.
Some retired individuals are afraid to take a new mortgage or refinance one. No one wants to still be in debt at the age of 65. You just want to be worry and debt-free.
In the recent years, this has changed. There are still many who have mortgages to pay at this age. Some seek new ones even after retiring.
Is it really practical to refinance after you retire? Now that the market’s rates are still at their all-time lows, it is so tempting to do so.
This question is not just a simple yes or no. You have to consider a lot of factors; including whether you are going to stay in the house for the remainder of your life or you think of downsizing, how much time remains in your present mortgage, your current rates, and the terms of the new loan you’re looking at. Even your health status comes into play.
For those individuals who are just in their 50’s, they should consider refinancing at this point rather than waiting to refinance once they retire. Here, cashflow is still easy.
Because lenders still look at income as a basis to approve a loan, it is more practical to refinance while you still have a steady stream of cash coming in from your job. Yes, it is true that a lot of retirees have hundreds of thousand of dollars in their savings accounts to cover the monthly mortgage payable, but what if their regular income coming from social security or pension may not be enough.
How about those who have already retired?
Should you that never refinance then? You can never say never. Of course, retirees can still refinance. If after doing some calculations, the new loan gets you to the point of only breaking even, and not actually allowing you to save, then save yourself the trouble. If refinancing will saveing you a significant amount of money, then it is worth all the work.
Is your retirement plan enough to suffice your new loan?
Your income may come from Social Security, pension, an investment, rental income or any part-time job. Your income is what lenders look at and are focused on. If this income is just enough to over your recurrent expenses, this may not get you the loan you want.
Your housing expenses must not exceed more than a quarter-part of your gross income. Even if you have a heap of cash as savings to pay off the loan, this may not impress the lender as much as your income would.
Your income will the lender’s basis on your ability to pay the loan. Which is why it is very important.
The length of time matters.
How much more time is left on the current mortgage? You have to think of this. Compare it with a 15-year term and a 30-year term. On which are you going to save more money? Which one makes it easier to pay off every month?
A 15-year mortgage will have a lower interest. The monthly payments will be higher, but it will pay off earlier.
A 30-year term has lower monthly payments. But when calculated, interest rates are higher.
Calculate as to when you will break even, and how much you would save by refinancing. Take note, some lenders only allow retired individuals a 15-year term. If you’re looking for a longer one, you may have to do more shopping.
Staying for good or seeing yourself moving out?
If you see yourself staying in the same home, it can be practical to refinance. But if downsizing will save you more, opt for that option. Also, if you’re thinking of selling the property two to three years from now, you will not get the closing cost back.
Downsizing your home to a more manageable one can also save you more money. Even if you didn’t want to move out, you need to consider your medical condition and health. Will your income and saving be enough to cover both your current home mortgage and health expenses?
Annuitization is a way of making use of your savings – such as your Individual Retirement Account (IRA), and other annuity investments – and convert them into a series of regular payments. You can ask the lender to consider it as part of your monthly income. Although this is where much of the paperwork is done, making this a supplement to your income may help you qualify for the lender’s income requirements.
Finding the right lender.
Shopping will help you find the right one. Not all lenders know about annuitization. Not all lenders offer a 30-year term for retirees. Shopping for lenders will give you more choices to choose from. You can refinance to any lender licensed to do business in your state, so you don’t need to limit yourself to just the one you have one.
Refinance is not impossible retired individuals. Your circumstances and the current refinance market can tell whether it is practical to do so. Do not hesitate to seek professional help by talking to different lenders. The ultimate goal is to refinance to make homeownership more manageable and sustainable in your golden years.