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Refinancing After 50

The closer you are to retirement, the more complex the decision to refinance the mortgage on your home.

Refinancing a mortgage after 50 might not seem like the most logical course of action. After all, it's a time in life when you're at least thinking hard about retirement, if you're not already there. The last thing you want to do, reason would suggest, is to add more years to the end of your home loan.

Yet for 62-year-old Eileen Fitzpatrick, refinancing made perfect sense when it came to her two townhouses in Sterling, Va. "We knew we were going to stay in one for another two years, and then three years in the second one," says Fitzpatrick, a public relations specialist. "We weren’t concerned about closing costs. We rolled them into the mortgages."

Fitzpatrick’s interest rates on both homes fell by a full percentage point with the refi, saving her $150 a month on each mortgage, or $3,600 in total annually. The average closing costs for a $200,000 mortgage, according to Bankrate.com, are $3,741. For Fitzpatrick, the savings were worth it considering the length of time she planned to own the houses.

With interest rates hitting record lows, many older homeowners are wrestling with the same question: Is it worth it to refinance at my age? The answer depends on a number of factors, including how long you plan to stay in the home, the interest rate and time remaining on your current mortgage, and the terms of your new loan.

Factor in your retirement plans

If you're over 50 and contemplating a mortgage refi, first give careful thought to your retirement plans. Do you expect to relocate soon? Downsizing to a smaller and more manageable home can make perfect sense. Even if you don’t plan to move, are you healthy enough to remain in your current home indefinitely? Weigh your medical conditions and family history.

Unless you can stay put long enough to recoup the closing costs and start pocketing the savings offered by the lower rate, refinancing might not make sense. Use a mortgage refinance calculator to run the numbers on your loan, paying particular attention to the breakeven point when your savings surpass the closing costs. Have good-faith estimates from lenders handy so you can input accurate closing costs.

"A person 25 and a person 65 should view lowering the interest on a mortgage the same way: I’ll benefit to pay less interest — the question is will I recoup the closing costs," says Bob Walters, chief economist at Quicken Loans. "If the answer is yes, then I win."

Here's a simple example. Let’s say you have a $150,000 mortgage with an interest rate of 5.5%. By refinancing to a lower rate of 4.25%, you can save around $1,800 a year. If closing costs are $2,000, then you’ll be ahead of the game in the second year. But if you end up selling the home within a year, you’ll lose on the deal.

Take note that it's possible to find a mortgage refinance that has no closing costs associated with it. Usually, that means the interest charged will be higher than the going rate. Again, use a refi calculator to crunch the numbers to see which option works best for your circumstances. Mortgage firms are more likely than banks to offer refis with zero closing costs, according to Amy Crews Cutts, deputy chief economist at Freddie Mac.

Look at what's left on your mortgage

Another consideration when deciding whether to refinance is how much is left on a mortgage. If you're over 50, odds are you're at least a few years into your three-decade loan period. You probably don't want to restart the clock for another 30 years and extend the length of the mortgage into your 80s.

However, if you're halfway through the 30 years and paying above-market interest, you might opt instead to refinance to a 15-year mortgage. Just make sure the new rate will allow you to recoup closing costs quickly, say in a year or so. Rates on 15-year mortgages are lower than those on 30-year loans.

Be aware that different borrowers get different rates on refis. Many variables, from your credit score to your home appraisal, can affect the offer.

Every 10th of a percentage point counts. On a $200,000 mortgage refi with a 15-year term, you'd save about $10,000 in interest for every half point you can lower the rate. It pays — sometimes handsomely — to shop around for the best available refinancing terms.

In some cases, a better option for older homeowners who are well into a 30-year loan might be to start making extra mortgage payments rather than refinancing. You can save a bundle in interest without the added paper work and closing costs by paying off a mortgage early. Even if you have 15 years left on a 30-year, $200,000 mortgage at 6%, you can save nearly $10,000 over the remainder of the loan simply by paying an extra $100 a month. You'll also find yourself mortgage-free almost two years earlier by making extra monthly payments.

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