There are many refinancing options available for retirees, including programs from Fannie Mae and Freddie Mac.
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If you’re a senior, you may have thought about taking advantage of record-low interest rates and refinancing your mortgage to save money or access your equity. However, you might also be wondering whether you can qualify for a refinance with your retirement income.
Retirement can bring big changes to your finances. With a fixed income, you may be looking for ways to reduce expenses or access home equity. Refinancing your mortgage can help with both of those goals. But is it possible to refinance after you retire?
The short answer is yes. You can refinance a mortgage after retiring. However, it may be more difficult to qualify for a refinance once you are on a fixed income. Lenders want to see steady, ongoing income to repay the mortgage.
Here is what you need to know about refinancing after retirement:
Why Refinance After Retirement?
There are a few key reasons retirees may want to refinance
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Lower interest rate – Interest rates fluctuate over time If rates fall after you originally bought your home, refinancing could reduce your rate and lower your monthly payments This helps stretch retirement income further.
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Access home equity – Many retirees have built up equity in their home. A cash-out refinance lets you tap this equity while keeping ownership of the home. Use the funds to pay off debt, complete renovations, or cover large expenses.
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Change loan term – Refinancing into a shorter term like a 15-year mortgage builds equity faster. Or you may prefer to go back to a 30-year term to lower payments
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Pay off mortgage – A refinance can help retirees pay off their mortgage faster or before retirement is over. This reduces expenses on a fixed income.
Challenges of Refinancing After Retirement
While refinancing after retirement is possible, you may face extra hurdles compared to borrowers who are still working. Here are some key challenges:
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Proving income – Lenders want to see stable income that will continue for the life of the mortgage. For retirees, this often means providing documentation for things like Social Security, pensions, retirement accounts, and investments.
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Higher debt-to-income ratio – Your debt-to-income ratio compares your total monthly debt payments to your gross monthly income. Since your income is lower in retirement, your DTI may go up, making it harder to qualify.
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Loan term – Some lenders may not approve a 30-year mortgage that extends past your expected retirement age. Shorter terms come with higher monthly payments.
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Credit scores – Many retirees have great credit. But late payments on even a single account can tank your credit score, limiting refi options.
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Home value – If your home has lost value, you may no longer qualify for cash-out refinancing or have enough equity to make it worthwhile.
Tips for Refinancing After Retirement
If you want to refinance after retiring, here are some tips to boost your chances of approval:
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Shop around with multiple lenders to compare mortgage rates and programs. Look for lenders familiar with retiree borrowers.
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Time it right by applying while you still have income from work, before you are fully retired.
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Pay down debts and maintain good credit leading up to your application. This helps your debt-to-income ratio.
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Get all your financial paperwork in order early – tax returns, bank statements, retirement account info.
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Consider downsizing your loan amount or choosing a shorter term to right-size your monthly payments.
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Ask lenders if they will accept projected retirement account income. Some may while others require a history of withdrawals.
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Refinance with your current lender, who already knows your finances and history.
Documentation Needed to Refinance After Retirement
As a retiree, expect to provide more documentation to prove your income sources. Here are some common items lenders ask for:
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Statements showing pension or Social Security payments
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Tax returns – 2 years minimum for self-employment income
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Bank statements reflecting regular retirement account withdrawals
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Documentation for annuity payments, dividends, rental income, etc
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Asset statements showing 401(k), IRA, or investment balances
Providing every source of income will help you qualify for the largest loan amount possible.
Alternatives to Refinancing After Retirement
If refinancing won’t work for you, consider these alternatives that may help your retirement finances:
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Lower rate with current lender – Ask if your lender offers an interest rate reduction program that lets you get a lower rate without refinancing.
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Home equity loan – Borrow against your equity with a home equity loan or HELOC. Often easier to qualify for than a cash-out refinance.
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Downsize home – Selling your current house and downsizing can free up home equity to use in retirement.
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Reverse mortgage – This specialized mortgage for seniors lets you access home equity as income without having to make payments.
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Recast/re-amortize – Pay down your mortgage balance, then your lender recalculates payments at the lower balance. May avoid refi costs.
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Modify loan terms – In some cases, you may qualify to extend your loan term or switch to an adjustable rate mortgage with lower payments.
The Bottom Line
Yes, it is possible to refinance your mortgage after retiring and getting on a fixed income. But you need to prepare for more paperwork and potentially higher hurdles when applying as a retiree.
Work on improving your finances leading up to retirement. And explore all your options, like downsizing or a reverse mortgage, before deciding if refinancing makes sense in your situation. Reviewing your goals with a financial advisor can also help you determine the optimal strategy.
With proper planning and diligent preparation, you can often refinance a mortgage even after leaving the workforce. This opens up options to reduce costs, tap home equity, and manage money effectively throughout your retirement.
Rate and term refinance
A rate and term refinance, also known as a traditional refinance, is a type of mortgage refinancing that meets Fannie Maes or Freddie Mac’s requirements. It can be the most cost-effective way for seniors in good financial standing to refinance their home loans.
A conventional rate and term refinance can give you a lower interest rate, a shorter term, or both. If you have at least 20% equity, you won’t have to pay for private mortgage insurance, and these loans don’t have the additional costs that FHA and VA loans do.
Seniors who want to do a cash-out refinance have many options, including a conventional loan, HomeReady cash-out refinance, FHA cash-out refinance, and VA cash-out refinance. This mortgage type will be most helpful if you can get a lower rate on your existing mortgage in the process. If not, a second mortgage might be a less expensive option.
Increasing how much you owe on your home during retirement goes against the conventional wisdom of paying off your mortgage before retirement. Still, it’s always worth checking to see if the usual advice makes sense in your situation.
When mortgage rates are low and you have enough cash flow from retirement accounts, Social Security, and other assets to make monthly mortgage payments, a cash-out refinance can be a good option to explore. It can help you unlock some of the equity in your home and allow you to enjoy your retirement more.
Refinance program options for seniors
Employment income is not a requirement to get a mortgage, and lenders aren’t allowed to discriminate based on an applicant’s age (you just have to be old enough to legally agree to a contract). So, you can still qualify for a mortgage if you’re over the age of 60 or retired.
Along with Social Security income, lenders will count distributions from retirement accounts, such as 401(k)s and Roth IRAs, as long as their calculations show that this income will be available for at least three years after closing.
Important: Government refinance programs for seniors aren’t really a thing. While many mortgages are guaranteed or supported in some way by federal taxpayers, these mortgages are open to all adult homeowners who qualify financially. State housing finance agencies sometimes have programs to help struggling senior homeowners, however.
Can I Refinance After I Retire? – AssetsandOpportunity.org
FAQ
Can you refinance your house if you are retired?
Whether you’re looking to refinance, relocate, or downsize, there are solutions tailored to fit the financial needs of retirees. By exploring options like conventional loans, FHA programs, VA benefits, and reverse mortgages, you can enjoy the next chapter of your life in a home that suits your retirement dreams.
Who is not eligible for refinancing?
Refinancing applications often get rejected due to low credit scores, unstable employment history, high debt-to-income ratios, or discrepancies in the applicant’s financial documents. Lenders also consider payment history and overall financial health when making decisions.
Can a 65 year old get a 30 year mortgage?
The Equal Credit Opportunity Act Makes Age a Non-Factor
What’s important is that you should demonstrate your capacity to repay the money you wish to borrow, either in the form of income or assets. So, the answer to, “Can I get a 30-year mortgage at age 65?” is in the affirmative, provided you check all the boxes.
Is it hard to get a mortgage after retirement?
If you’re a retiree, don’t assume that living on a fixed income makes it is impossible to buy a home. The reality is you can still buy a home without a job as a retiree as long as your income meets your lender’s standards for a retirement mortgage.
Should you refinance a home loan after retirement?
Whether to take advantage of lower interest rates or to tap into your home equity, you’re never too old to refinance a home loan. Refinancing after retirement can be a challenge for many reasons, but with the right resources, you can find a refinancing program that works well for you.
Can seniors refinance After retirement?
Refinancing after retirement can be a challenge for many reasons, but with the right resources, you can find a refinancing program that works well for you. Let’s take a look at the best refinance programs for seniors and how you can improve your chances of qualifying for a mortgage refinance. Can seniors refinance a mortgage?
Should I refinance my mortgage?
Low record interest ratesaside, you may refinance mortgage debt to tap into your home equity. According to ATTOM Data Solutions, 28.3% of mortgaged homes are “equity rich”, meaning the estimated amount of loans secured by those properties was 50% or less of their estimated market value. HOW TO DECIDE IF YOU SHOULD REFINANCE YOUR MORTGAGE
What happens when you refinance a mortgage loan?
When you refinance your mortgage loan, you replace your current loan with a new loan. You can refinance to get a lower interest rate, reduce your monthly payment or take cash out to cover debt. A refinance can have a dramatic, positive impact on your finances in both the short and long term. 2. Apply with your mortgage lender of choice
Can I get a renovation loan while refinancing my mortgage?
Notable renovation loan options include: If you’re planning on hunkering down for retirement, it may pay off to invest in some home improvements while you’re refinancing your mortgage. Rocket Mortgage ® does not currently offer renovation loans.
What should I consider before obtaining a mortgage after retirement?
Before getting a mortgage after retirement, consider the following: A mortgage after retirement is just like any other home loan. Here are some things to keep in mind: