How to Refinance a Mortgage for a Lower Payment in Retirement

by C. Taylor

Retirement is supposed to be a period of rest and relaxation, but for some people it can be a period of reduced income. If your retirement plan offers only a fraction of your career income, then maintaining the same expenses can cause a problem. Although certain expenses cannot be adjusted, your mortgage payment can be adjusted. Refinancing may allow you to reduce your monthly payment, and even provide cash to pay off other expenses.

1. Refinance for a lower amount. If you've paid your current mortgage for numerous years, you have inevitably paid off a certain amount of the original loan. Even if you refinance with the same interest rate and loan term, you can reduce your monthly payments. For example, if you paid off half of a $150,000 loan, then you can refinance the $75,000 balance to cut your payments in half.

2. Lower your interest rate. With a weak economy, coupled with a good credit history, you will likely receive a lower interest rate. This improved rate reduces your payment by reducing accrued interest, even if you borrow the same amount. In the example from the previous step, if your original interest rate was 8 percent on a $150,000 loan, a reduction to 4 percent would reduce your payment by $385 a month

3. Extend your loan term. Even if you keep the same interest rate and loan amount, extending the loan term will reduce your payment by spreading the payback over a longer period of time. In the example, only moving from a 15-year mortgage to a 40-year mortgage would reduce payments by $390.

4. Get cash back to cover higher interest debts, such a credit cards. Continuing the example, if you had built up $30,000 in equity, you only owe $120,000 on the loan. If you refinanced for the original $150,000, you'll receive that extra $30,000 as cash, which you can use to pay off any credit-card debt you may have. If you had $30,000 in credit-card debt at 29.99 percent interest, you would save $749.75 in monthly credit-card interest.

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