The Big Move: I’m 66 and have $47,000 left in my 30-year mortgage. I’ll be 90 when it’s paid off. Should I refinance to a 15-year fixed?

I want to refinance my loan to a 10-year or a 15-year fixed-rate mortgage, to pay the loan off sooner.

So my question is, is it a good idea to refinance? Please advise.

Signed,

No Luck

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Dear No Luck,

Looking at current mortgage rates, I’d say you’re better off not refinancing your 30-year fixed mortgage.

I know you want to pay it off fast. But you’ve got a mortgage with a 3% interest rate. You’ve snagged a historically low interest rate, which we may not see again for years.

If you want to refinance, your monthly payments could go up. The mortgage rate for the average 15-year mortgage is over 5%. I’m not certain if you want that, as you may now be retired, or planning to retire very soon.

If you’re thinking of doing a cash-out refinance, David Krebs, who is a Florida-based mortgage broker, said that it may be a good idea, as long as you have enough equity in your home and the property value is high enough. 

If you’ve got a “pressing need for cash,” Krebs said, “then it might be worth paying the higher interest rate in exchange for being able to tap into the equity.” Pressing needs could refer to medical bills, or urgent expenses. This would be an emergency, and I caution you against doing it if at all possible.

Krebs also suggested considering a reverse mortgage to pay off your mortgage using the equity in your home, and then borrow a part of the remaining equity — either as a monthly payment, lump sum or line of credit. But do your own research before choosing this option.

You also said that your mortgage transferred hands between lenders, and — based on you saying you’ll be 90 when it’s paid off — the duration got extended by 20 years. I’m not sure why that happened. Krebs agreed that this doesn’t make sense. 

On possibility: You may have entered into a loan modification with either the old or new lender.  A loan modification is a mutual agreement, where both the borrower and the lender sign a written agreement modifying the terms of the loan. In your case, the maturity of the loan was likely extended by 20 years, Krebs explained. 

But “it is not normal or legal for the lender to unilaterally extend the term by 20 years,” he added. So double-check to see if you had signed a document that extended the duration of the loan.

And back to the refinancing question with a final warning. The mortgage rate on a 15-year fixed-rate mortgage just inched up to 5.54%. If you refinance, the price of being debt-free sooner may eat your monthly budget.

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