Mortgage Refinancing and Other Creative Options for Retirees
Cash-out refinancing? NEG AM loans? Reverse mortgages? We are here to help.
Are you a Baby Boomer approaching retirement? Then perhaps you should consider all the various retirement financing options available to you, including mortgage refinancing.
Perhaps you are an "empty nester" thinking about moving from a big colonial to a smaller apartment. Perhaps you have credit card and other debts to pay. Or perhaps you just want to move to another state, switch to a slower pace of life and shift things into a lower gear without any worries. Some extra cash helps in all those situations.
What can you do then to reorganize your finances and meet the needs of your retirement lifestyle? A lot, actually, especially if you own your home.
An excellent move all retirees should consider is to clean up all those high-interest credit card debts. If you have been paying a mortgage for over ten or twenty years the chances are you started to pay off your principal and have built up a nice chunk of equity in your property.
Use that equity to pay off your debts. How? Refinance your mortgage for an amount larger than what you owe on your house. The difference is cash in your pocket. That's what cash-out refinancing is all about.
Let's illustrate. Imagine you own a house that you've bought for $200,000 and today you owe only $50,000 on it. When you refinance your mortgage for $80,000 there will be a difference of $30,000 between what you still owe on your house and the amount you get from the bank. That $30K is cash in your pocket that you can use, for example, to pay your existing credit card debts. If you are one of those lucky ones with no debt, perhaps you can take that long postponed trip to Arizona and see the grandchildren. Possibilities are limitless.
Interest rates go up and down in cycles. If by the time you retire you happen to hit a cycle that pulls the interest rates down, you might want to consider refinancing your mortgage - especially if your original interest rate is a full percentage point above the current rate. Such refinancing will certainly lower your monthly payments, leaving you with more cash for home repairs, debt payment, or that fantastic Caribbean cruise.
As a retiree you should keep in mind the important difference between cash-out refinancing and a regular home equity loan.
In a cash-out situation you are actually cancelling your original mortgage and taking out a new mortgage. In a home equity loan, on the other hand, you keep the terms of your existing mortgage as is and simply take on a new debt by using your home's equity as collateral. If you are retiring on a fixed income and do not have any sources of "passive income" (i.e., income you earn without working), you might want to think twice before piling up new debt through a heavy home equity loan.
How about a negative amortization (NEG AM) loan? That's another option you might want to consider as you approach your golden retirement years. Basically NEG AM is a loan with a super low interest rate, as low as 1.0% or even 0.5%. What this provides you with is lower monthly payments and more disposable cash in your pocket, in return for stretching out your loan repayment period all the way up to 40 years. In this option, your payments are so low that they do not even cover the normal interest payment on the loan. The missing amount is added to the total loan amount to be paid back to the lender over the term of the loan.
If you are 62 or over, you might also consider a reverse mortgage as a way to finance your retirement. In this interesting arrangement, the bank actually pays you a monthly amount all of which are added to the lien on your property. It is only when you leave your property that the lien-holder bank recoups its loan by claiming the accumulated equity in your home. If your property's value increases while you hold a reverse mortgage, you can even borrow an additional amount against the new equity.
As you can see, there are a wide variety of financial instruments you might consider as you approach your well deserved retirement.
Here at Mortgage Wizards we specialize in such customized retirement solutions. Do call us today TOLL FREE at 877-310-FUND for a confidential talk to see how we can best meet your retirement needs through intelligent planning and advanced preparation.
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