March 23rd, 2021 7:00 PM by Jackie A. Graves
Great reasons to take out a new home loan — and how to do it right.
As the kids might put it, don't @me after you read this unpopular idea: If you are nearing retirement and intend to stay in your home for five years or more, consider refinancing your mortgage now and even converting some of your home's equity into cash.
Yes, I know, everyone says to pay off your mortgage before your paychecks stop. But now — a time when mortgage rates are at near historic lows and home values generally high — I would argue the reverse is true.
If you will need cash in retirement, refinancing your home might be the best way to raise it, says Bradley Clark, a financial adviser in Andover, Massachusetts.
Or, if you already have enough to get through retirement, you can use cash raised by refinancing to add to your investments. Finally, he says, if you're like most people and you just don't know if you'll have enough money, you can buy flexibility with a lower-cost mortgage that you pay off over the long term. That way, if you eventually need to access the money tied up in your home, you'll already have it. And you'll avoid costlier or more stressful alternatives.
More reasons to do it
How to do it right
The key to this strategy is to protect any cash from your refinancing so that you can always make your payments. For financial adviser David Hultstrom of Woodstock, Georgia, that means keeping the money in safe investments such as bonds or bank certificates of deposit.
With interest on savings near zilch now, you'll lose a small amount of money on the spread between the interest you'll earn and the mortgage interest you'll be paying. But if and when rates rise, your position would improve, says Hultstrom, 53, who recently refinanced his own home with a new 30-year loan.
Why not to do it
Don't refinance if you doubt your ability to maintain payments as long as you own your home. Don't use a cash-out refi to pay off credit cards or other unsecured debt. And don't use money to give to your kids or take around-the-world vacations (unless you already have enough money socked away to repay the loan). The risks are severe: Handle your cash badly and throw in some bad luck, and you could lose your house. That's a lot worse than missing out on a bargain mortgage.
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