Should You Refinance Before Retirement? 7 Pros and Cons


5. There could be tax complications. Being responsible for a mortgage payment in retirement can create tax issues. You may be more likely to pull more money from retirement accounts in order to cover your mortgage payments, and that can mean triggering increased income taxes.

6. It could burden your heirs. Refinancing just before retirement may mean that you never get an opportunity to own your house free-and-clear before you die. “If you are 60 and refinancing with a new 30-year term, you can’t necessarily expect to pay off your house and leave it to your kids,” says Gumbinger. “There will probably still be a mortgage on it by the time the next generation gets it.”

7. You may retire with debt. Refinancing may lower your monthly payments, but it often means extending the length of your loan. Making mortgage payments well into old age is likely to be a burden on your finances—at a time when you are trying to live on less. Plus, it could cost you quite a bit more in interest over the life of the loan to refinance, especially if you’re more than five to seven years into your current loan.

So if you have the option to rid yourself of your housing payment before retiring, you’ll likely have greater peace of mind. Added bonus: You can use the money for travel or other living expenses in your golden years.

RELATED: Do You Need a Retirement Planner? 5 Times You Might

LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services. LearnVest Planning Services and any third parties listed in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.

  • Ashley Nelson

    I’d like to say that refinancing while retirement is a complete NO! The disadvantages are way more than the advantages. If you’ve accumulated enough equity in your home, why would you refinance for extra cash instead of taking out a reverse mortgage? If you haven’t reached the age, wait on! Taking out a reverse mortgage is a better way of getting access to cash and your heirs can also stay cool about it. You don’t retire with debt and there’s no dangling sword that forces you to make payments towards the loan. Instead, you are paid monthly by the lender.