As many adults approach retirement, their goal is to pay off as much of their mortgage balance as possible. After all, when your mortgage is paid off entirely, your monthly expenses will understandably decrease substantially. However, there are numerous benefits associated with refinancing a mortgage as you approach retirement or even while you are in retirement.
Pay Your Debt Off Faster
Many homeowners who have been paying on the same mortgage for years may have their debt established on a 30-year term with a relatively high interest rate. When you refinance your mortgage, you may be able to take advantage of a lower interest rate and a shorter term. These two factors combine together to give you potentially faster debt reduction.
Reduce Your Monthly Expenses
Depending on the specifics of your current loan and the new loan that you may qualify for, you could reduce your monthly mortgage payment. Keep in mind that your mortgage payment amount is based on the interest rate and loan term that you select as well as the amount of the loan’s original principal balance. If you had a starting loan amount of $200,000 on financing that started 15 years ago and that still has 15 years remaining on the loan, your payments are based on the $200,000 loan amount. However, if you only have $50,000 left on your mortgage, you could refinance so that your payments are based on this much smaller loan amount. The result can be substantial savings.
Use the Equity
Another reason to potentially refinance your mortgage is to tap into your home equity. You may have tens or hundreds of thousands of dollars available in your home's equity. The cash-out refinance option can take some of that equity and turn it into cash in your hands. If you are a veteran, there may be even more options available to you when you use a VA cash-out refinance loan. This cash may be used to invest in income-producing assets, to pay off other debts with a higher interest rate, or to achieve other financially-beneficial goals.
Take Advantage of Tax Benefits
While it may seem ideal to pay off your mortgage, keep in mind that your mortgage gives you tax benefits each year. If you pull equity out or even if you simply apply for a rate-term refinance, you can continue to take advantage of the tax benefits while also taking advantage of some of the other benefits described here.
Your home mortgage is a debt, but it also can be an excellent resource when used strategically. Determine what your short-term and long-term goals are, and explore the many ways that refinancing may help you to accomplish your goals.
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