When a person gets close to the age of retirement, there are several things that they may be considering. For one, they may be wondering what they are going to do with the extra time that they are going to have, or they may be wondering about what type of hobby they should take up.
However, the majority of those who are close to the age of retirement are often considering their financial status. They may be wondering what they are going to do during retirement in terms of how much they will be earning. Those who wonder this are often the ones who question whether they should refinance their home mortgage before they retire to lock in a lower payment or better rate.
To Refinance or Not
There are several aspects that a soon-to-be retiree needs to consider before refinancing. The main aspect to consider is your financial situation. Is refinancing going to help you or hurt you more in the long run? You should not only look at the new mortgage amount compared to what you are currently paying, but also at the interest that you are going to stack onto this. For example, if you are looking at a 30 year refinanced mortgage and you only have 15 years left on your current mortgage, you will find that in the long run you pay more for the refinancing than if you were to go ahead and pay for the mortgage that you have now. It is these types of mistakes that people make that can really cost them in the long run and can affect their retirement happiness.
Missing Out On A Tax Deduction?
Perhaps one of the biggest tax deductions you will have in your lifetime is that of the mortgage interest deduction. Of course, this has likely saved you tons of money in taxes during your career. However, when you are approaching retirement age (or if you are retired now) you will likely be in a lower tax bracket. So, the actual amount you would save would not be as great as when you were in your prime earning years. Being debt free might just trump a tax reduction for some people.
Other Factors to Consider
You should also consider whether you really want to retire with more debt. Most people who are close to retirement work to ensure that once they do retire they have nothing that they owe any longer. Thus, they can make their retirement go a bit further instead of having to focus on paying bills.
Secondly, consider if you really want to refinance your mortgage for another 30 or so years. Many retirees often keep their mortgage as is since they know that they are going to be moving soon. If you do plan on moving in the near future, then refinancing could be one of the worst decisions that you make.
Lastly, you will want to consider if a reverse mortgage might be in your future. If so, you would actually be better off paying off your mortgage as opposed to refinancing it. To get the most out of a reverse mortgage you will want to have as much equity in the home as possible.
So, should you refinance or not? This really depends upon your comfort level with having more debt when you retire and whether this is really going to save you any money in the long run. There are many seniors who do this and often state that this is one of the best things that they could have done, while others may think that this is a foolish decision. The best advice is to talk to a financial expert about where this would put you and whether this is really worth it or not.
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