Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

11/30/2006
I'm retiring — should I still refinance my home equity?
I have a home equity line of credit in the amount of $30,000, and Iím contemplating refinancing again, but I wanted to know is that a wise thing to do if Iím planning to retire within the next six months to a year? $15,000 out of that $30,000 I have used or transferred over to an account, and I have an outstanding balance of $10,000 or $11,000. Which is my best course of action?
Alyssa Rakovich:
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How much outstanding debt do you have total? Where and at what rates and terms? What are your monthly payments? What is your current income? How are you making the payments now?
Jeff Kyle:
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Please be aware that there are costs to refinancing. Why not just pay off your mortgage? It will keep you from having to incur the costs of a refinance & free up monthly mortgage payments (increasing your monthly cash low). The interest only loan means your payments pay only interest. Nothing from that loan is going toward principal [the amount of money owed on a loan, excluding interest. Also, the part of the monthly payment that reduces the remaining balance of a mortgage. Fannie Mae homebuyers glossary]. A mortgage planner will try to get you to refinance because they will receive a commission, but my advice is pay off the loan & be free from debt.
Anne Delle Donne:
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Generally speaking, I do not recommend initiating or maintaining large debts during retirement. To properly answer this question I would need more information--is the $30K generating an interest expense? I might try to retire (pay off) as much of the loan (home equity line of credit or HELOC) as possible if it is generating an interest expense and refinance at the lower amount.
Laura Rogers:
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I am a little unclear as to your circumstances so it is hard to provide a clear answer. One point to keep in mind, however, is that once you retire, you may have a hard time qualifying for a new loan since your income is typically less. Also, be aware that you may have to pay your current lender some fees if you close your current equity line, so you should call your financial institution to clarify. If you have a trusted lender/financial advisor, you should seek their guidance as they will be better able to obtain the full extent of your circumstances.