Many financial planners will encourage you to pay off your mortgage while you are still working so you can live your life debt-free as early as possible. 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.
According to Federal Reserve’s Survey of Consumer Finances, thirty-five percent 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, have to dip into their retirement funds to help cover their mortgage payments. Unfortunately, this reduces the amount of money retirees have to 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.
Paying off a home just 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, making your monthly payment reduce a great amount.
Mortgage refinancing 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
If mortgage rates have decreased since you took out the loan, 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 as well. You can also lower your monthly mortgage payments by extending your payoff date past what it currently is, so you’re 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 to lock 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 refinance to a 15-year fixed-rate mortgage after a few years. This allows them to pay the mortgage off faster and save a lot of money in interest over the life of the loan.
I would take this out only because the tone of the post is to save money, so maybe we should omit anything about borrowing money.
You can 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 HELOC (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 refinance once you reach 20 percent equity to eliminate the premium that’s built into your interest rate.
Pulling cash out for repairs that could end up being very costly down the road or it could help with the rising costs of college tuition.
Contact one of our mortgage professionals now to learn about how you can refinance your home today.