Older borrowers are rushing to take advantage of rock-bottom interest rates by refinancing existing mortgages to ease their debt burden and set aside retirement funds. But some might not meet credit requirements due to inadequate equity, reports MercuryNews.com.
The average rate of a 30-year fixed mortgage dropped to 3.36 percent, the lowest it has been since mortgage giant Freddie Mac began record-keeping in 1971, before rising slightly last week. A 15-year fixed loan fell to 2.69 percent.
The low rates carry special urgency for boomers and seniors. The median value of mortgage debt for people 55 to 64 years old has increased 187 percent in the past two decades, probably because many pulled out home equity during the housing bubble, according to a report by AARP. The median amount of debt for people ages 65 to 74 has also increased sharply, the AARP said.
There’s one catch to refinancing and it’s a big one: The borrower has to have enough equity to meet tough credit requirements.
“I’m certainly advising clients, if they’re not underwater, to definitely lock in the best fixed rate they can,” said Michael Olff, a financial planner with Gateway Financial Advisors in Walnut Creek.
For those who can take advantage of them, the low rates can produce big savings.
For example, a 30-year, $300,000 mortgage at 3.36 percent carries a monthly payment that’s almost $200 less than one at 4.5 percent. A 15-year, 2.69 percent loan would carry a higher monthly payment than the 30-year loan but would pay off sooner and save $70,000 in interest.
There can be downsides to refinancing, an actuary notes in the article, as it essentially “resets” the loan period and can result in a slower build-up of home equity or even an increased balance.
Read the full article at MercuryNews.com.
Written by Alyssa Gerace