Would it make sense to refinance to a 30-year mortgage, which reduces the principal and interest payment to about $700 a month? It certainly would free up cash in our monthly budget.
-- Don Dilemma
I think refinancing to a longer-term mortgage is a bad idea for you, at least. But, if you are going to do it, you should get to it while you are still working. Refinancing in retirement is tough. It will be easier to get the mortgage approved with the income you have now.
Let's assume you do downsize five years from now and that means you pay off the mortgage. By my calculations, you'd wind up spending an extra $6,000 in pretax interest expense over the next five years by refinancing into a 30-year fixed-rate mortgage. Add the estimated $4,000 in closing costs, and you'd pay about $10,000 for the privilege of freeing up $500 a month in your monthly budget.
|Loan term (months)||146||360|
|Total interest expense
after five years
I used Bankrate's Mortgage payment calculator and amortization schedule to get the five-year numbers. The existing loan term is estimated based on your current principal and interest payment. The closing cost estimate is based on Bankrate's survey, which showed a national average of $3,745 for a $200,000 mortgage.
If you'll both be older than 62 when you retire, you could look into a home equity conversion mortgage or reverse mortgage. If you took advantage of that opportunity, you'd have no monthly mortgage payment.
I think it would be smart to sit down with a financial professional to discuss your retirement income needs, including your sources of retirement income. Choose a fee-only planner, and don't take any major steps until you're completely comfortable with the decision. You might even seek a second professional opinion, if necessary.
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