Retirement Planning: Should You Refinance?

Retirement planners usually advise against carryingmortgage debt into the golden years. But homeowners over 50 are living in a different real estate world now. SmartMoney reports that around 50 percent of today's retirees are carrying mortgages, as compared to 25 percent two years ago. The following article explains when refinancing a mortgage during retirement makes sense and when it doesn't.

With interest rates
near record lows, refinancing has never looked so tempting – especially for people nearing retirement, who'd love some extra cash to pad their diminished savings. But for homeowners over 50, there's more to consider than just a lower rate.

Carrying a mortgage into retirement has traditionally been considered a bad idea – ideally, you'd be as debt-free as possible when your income stops, financial planners say. But in recent years, more retirees have had mortgage debt. About half of retirees said they carried mortgage debt in 2009, compared to one in four just two years earlier, according tothe Society of Actuaries. They're carrying more debt, too. The median level ofmortgage debt for those aged 65 to 74 jumped108 percent from 1992 to 2007, to $69,000.

That trend is unlikely to abate any time soon. With the typical interest rate for a 30-year mortgage hovering between 4 percent and 6 percent, the temptation is obvious: more cash in hand. American homeowners who are eligible to refinance have in droves. Refinancing applications made up about 82 percent of total mortgage loan applications in October, compared to just 55 percent in April, according to the Mortgage Bankers Association. The payoff is hundreds of dollars in "savings" each month. A $200,00 mortgage balance at 6.5 percent refinanced to 4.5% could cut monthly payments by $200 or more.

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