Refinancing Before Retirement: A Good Idea or A Financial Fail?

suburban homes

Low interest rates are tempting. We refinanced our brand new home only 9 months after we purchased it to drop our rate and save significantly per month on our brand new mortgage. It was a great deal. However, we are 32 and 33. Retirement is still a *few* years off for us. Saving money on our mortgage allows us to pay additional toward it every month to pay it off faster (you have no idea what one additional payment per year can save you over the course of your mortgage, let alone hundreds of extra dollars each month).

So what if you are close to retirement age? Should you refinance your home to make the payment less expensive and provide you with a little more financial freedom when you are no longer part of the workforce? While there is no right or wrong answer to this question, only personal experience can make the decision for you, there are plenty of considerations to make.

The Time Frame

How much time are you refinancing for? You might think that it sounds like a great idea to take the mortgage you’ve been paying on for 10 years and refinance it for another 30 and really save big each month, but do you really want a mortgage payment for another 30 years on the same house when you’ve already been there 10 years? No; you don’t. If you’re doing that, go ahead and refinance it for the 20 years you still owe, but for the lower rate to save. Additionally, you’ll end up paying a lot more over time because you’re paying a lot longer – even with a smaller monthly payment.

Closing Costs

Can you even afford the closing costs that are associated with a refinance? They are often thousands of dollars and can have a very lasting negative effect that might detract from the savings of your home. Consider this before you roll them into your new mortgage.

Do you Plan on Moving?

Another great consideration is your timeframe. Will you be here much longer if you’re that close to retirement? Are you looking to save as much as possible but then sell your home in two years to move after you do retire? The closing costs alone are going to make this whole refinance a wash for you, so go ahead and see what you can do to stick it out for the time being.

Photo Credit – Getty Images


Leave a Reply