As home interest rates continue to stay low, it's tempting to think about whether a refinance makes sense. One of our readers asked whether low rates should be a consideration for older homeowners who have mortgages they don't expect to fully repay in their lifetimes. Here's part of the question he posed:
At what age does it not matter how much interest you pay? I am 63. I am 6 years into a 30-year mortgage, There is no way I will live long enough to see the end of my mortgage. Given that, I see no reason to care about how fast I can pay my mortgage, since I will not see the end of it anyway. My only goal for a refi would be to see my monthly payment lowered significantly so I have more spending money left after paying my mortgage. . . . it doesn't matter at all to me what kind of balance my executor has to deal with when I die.
We asked Scott Sheldon, a Credit.com contributor and a senior loan officer at Sonoma County Mortgages, what he thought. He said he can see the reader's point, but the decision is neither a slam-dunk nor based solely on age.
By our calculation, our reader would have been 57 when he got that mortgage and therefore 87 when it is fully paid off. A lower-interest mortgage that would significantly speed up repayment (for example, a 15-year loan) would almost certainly increase his payment, and that's not what he wants.
"In short, yes, (there is) no point to refinance if you're not going to see the end of the mortgage anyway," Sheldon said. "Put simply, the payment is more important than the interest that you're going to pay if you're retiring and cash flow is the main objective."
However, our reader went on to say he wouldn't bother with the hassle and paperwork of a refinance to save, say, $50 a month. It's one thing to say it's too much trouble to do it for $50, but what if you thought of it as doing it for $2,400? That's four years of $50-a-month savings. So if our reader who thinks he won't live to see the end of his mortgage thinks he'll make it through four years, it might be worth it (he said he'd do it for $125-a-month savings). But he would also need to consider what a refinance will cost and how soon he would recoup that. (There is such a thing as a no-cost refinance, in which the borrower gets a slightly above-market rate in exchange for no closing costs, meaning the closing costs are rolled into the cost of the mortgage.)
"If somebody's paying some grossly inflated interest rate… , it makes absolute financial sense to possibly refi to free up that additional cash to support lifestyle," Sheldon said. And even modest savings may be meaningful "if you don't have a job to worry about and all you get to do every day is count your dollars," Sheldon said.
However, the option to refinance at the lowest rates is available only to applicants who have good credit scores. (You can find out if that's you with a free credit report summary from Credit.com.) And it's also worth nothing that this advice applies only to people who do not expect to pay a mortgage off (or aim to leave a paid-off home for a survivor). For the rest of us, saving on interest costs and paying off the mortgage are worthy goals.
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