Do refinancing and retirement mix?

24/09/2014

Consolidating and refinancing debts is always popular when interest rates are low, but interest isn't the end all-be all when it comes to making financial planning decisions.

The potential benefits of loan refinancing are clear. You can:

  • Obtain a more favourable interest rate
  • Consolidate multiple debts into one loan
  • Make changes to your loan terms

However, as you approach retirement, you need to ask yourself if refinancing is the right decision for you.

Questions to answer

If you refinance your home mortgage, it means you will likely be extending the length of your repayment period. So the first question you should ask yourself is: Do you want to continue living in your current home?

If you're planning to downsize down the line, extending your loan doesn't make much sense, especially if you're getting close to paying off your home in full.

At the same time, there are circumstances where refinancing may be a more suitable course of action.

Say your superannuation planning isn't getting the attention it deserves because you're focussing on meeting expensive mortgage repayments each month. If you plan on staying in your home and want to devote more funds to your super, refinancing to a lower interest rate could help you achieve this.

A personal decision

In the end, whether or not to refinance your mortgage as you approach retirement comes down to a number of personal factors, such as your post-work living arrangements and how much money you're currently paying toward mortgage repayments.

Before you get bogged down in how a refinance may affect your estate planning or risk management, it's a good idea to sit down with a professional financial planner who can help you explore your options while giving you a big-picture view of your current situation.