Refinance, Downsize or Use Equity? Homeowners Have Good Options Now

It’s a good time to be a homeowner in the US, especially if you’ve built up substantial equity in your home. Interest rates are down, leading many older adults to weigh the rewards of lower interest payments against the risks of paying off their house after retirement. Others are selling their big homes while the demand for existing homes is strong and moving to less-expensive parts of the country to retire or pursue second careers. Still others are tapping the equity in their current home to build their next home. Here’s a quick rundown of the options homeowners have now.

Refinancing while rates are low

Homeowners who’ve wanted to refinance to get a lower mortgage interest rate can thank UK voters for making it possible right now. The so-called Brexit vote unsettled world financial markets and pushed US mortgage rates to what the Wall Street Journal described as “near historic lows.” Savvy mortgage holders are using this turn of events to reduce the amount they pay over the life of their loans or to shorten the loan terms—an appealing option for younger Boomers and older Gen Xers who don’t want to deal with a house payment for years after they retire.

Before you apply for a refi, experts advise running a few numbers on your own. Specifically, think about how long you plan to stay in your current home, how much the refinance will cost you, and how long it will take you to pay off the new note. If you plan to live in your home for several years to come, won’t pay a lot in closing costs, and can pay off the note within a time that’s comfortable for you, refinancing may save you money over the long run.

Taking out a reverse mortgage

We write a lot on the SeniorAdvisor.com blog about using reverse mortgages to pay for long-term care, but there are other ways older homeowners can use their equity. For example, some people are tapping their equity to pay for construction of a new home—one that’s smaller or in a senior community, for example. Using a reverse mortgage allows them to live comfortably in their current home until the new home is ready–and to move in without taking on another mortgage in retirement. If this idea appeals to you, learn more at the federal government’s Home Equity Conversion Mortgages for Seniors site. These loans are only available to homeowners age 62 and up who go through pre-loan counseling to make sure they understand the requirements and outcomes of the loan.

Selling and downsizing

It’s been nearly a decade since existing-home sales were so strong in the US, which is good news for older homeowners who want to trade a big, expensive family home for something smaller or in a less expensive area. Some homeowners in pricey Orange County, California, are taking advantage of the seller’s market to downsize and save more money for retirement or to free themselves from the time commitment of maintaining a big empty nest.

Whatever your plans, now is a good time to review your situation with your financial planner to make sure you’re getting the most from your investment in your home. For more information on real estate options and services, check out the SeniorAdvisor.com Senior Real Estate guide.

Casey Kelly-Barton

Casey Kelly-Barton is an Austin-based freelance writer whose childhood was made awesome by her grandmothers, great-grandmother, great-aunts and -uncles, and their friends.