Refinance Programs For Seniors
Whether you want to lower your monthly payment, change your loan term or do both, the following senior refinance programs are available for qualifying homeowners:
Rate-And-Term Refinance
One option to consider is a rate-and-term refinance, sometimes called a “Rato” program for seniors. This is the most traditional form of refinancing where a lender can swap out a borrower’s current loan for a new loan with preferable terms.
For example, if mortgage rates have recently gone down, a borrower can apply for a rate-and-term refinance to lock in a new lower rate, potentially reducing their monthly payment in the process. A rate-and-term refinance can also be used to shorten a loan term.
Cash-Out Refinance
By using a cash-out refinance, seniors can both refinance their mortgage and earn some spending money from their home equity. The drawback is that this will increase the amount you owe on your new home loan, likely extending the amount of time you’re paying your loan off.
You could still lock in a lower rate, however, and put the cash from your home’s equity toward home improvements or other expenses.
Government Refinance Programs For Seniors
Qualifying borrowers may also have refinancing options from the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
Offered programs include:
FHA Streamline Refinance
If your current home loan is an FHA loan, you could take advantage of the
FHA Streamline Refinance program for a faster and more simplified refinancing process. A Streamline Refinance can save borrowers time and money by oftentimes skipping the appraisal and bypassing a credit check. Because of how much this can speed up the underwriting process, you can close on your new mortgage sooner than you could with other refinance programs.
VA Interest Rate Reduction Refinance (IRRRL)
Similar to the FHA Streamline Refinance, qualifying military veterans, active-duty service members and spouses can refinance through the VA IRRRL program. Your current mortgage must be a VA loan, and refinancing must provide you better terms, like a lower rate or monthly payment.
Fannie Mae And Freddie Mac Refinance Programs
Fannie Mae and Freddie Mac both offer mortgage refinance programs beneficial to those on a lower income, such as Social Security. Two of these programs are Fannie Mae’s RefiNow™ and Freddie Mac’s Refi Possible℠, both of which offer various benefits that include looser equity and DTI requirements for borrowers.
You can also refinance with Fannie Mae’s HomeReady program, which offers low down payment and mortgage insurance options.
Renovation Refinance
For seniors who want to finance home improvements as well as get a new mortgage, multiple renovation loans can roll the costs of repairs into a new loan. Notable renovation loan options include:
- Fannie Mae’s HomeStyle® Renovation
- Freddie Mac’s CHOICERenovation® loan
- FHA 203(k) loan
- VA renovation loan
If you’re planning on hunkering down for retirement, it may pay off to invest in some home improvements while you’re refinancing your mortgage. Rocket Mortgage®does not currently offer renovation loans.
Why Is Refinancing Different For Seniors?
So, what makes getting a mortgage different as a senior? It all depends on your motivation and finances.
Here’s everything you should consider before moving forward with a mortgage refinance as a senior:
Your Reasons For Refinancing
If you’ve lived in your current home for many years or have your mortgage paid off, you might wonder why you’d even want to refinance your home. Does it make sense to go through the entire mortgage process again?
For many seniors, the answer is yes. Reasons vary, but lots of seniors consider refinancing because they:
- Need to access the equity in their home
- Want to lower their mortgage payments
- Realize a new mortgage would lower their interest rate
- Want to change their loan term
Regardless of your motivation for refinancing, you’ll want to make sure your choice makes sense for your financial situation.
Your Assets, Income and Retirement Accounts
Most lenders like to see evidence of steady, reliable income from borrowers – and if you’re no longer working, it might be difficult for you to show regular cash flow when you apply for a refinance.
Luckily, many mortgage lenders now allow retirees to use income from their retirement assets to qualify for home loans. These assets include:
- 401(k)s
- IRAs
- Social Security
- Pensions
- Investment accounts
Bonds, Stocks And Mutual Funds
The type of investments you have may impact how mortgage lenders view your total income as a borrower. If you have accounts made up of bonds, stocks or mutual funds, lenders can only consider 70% of the value of those assets due to their volatility, so you may not qualify for as large of a mortgage as you initially thought.
Retirement Accounts
For your retirement accounts to help your application, you’ll need to demonstrate you can draw on these accounts without penalties for the next 3 years to support both normal living expenses and loan payments. You’ll also need to provide extra documentation on top of the standard mortgage paperwork to show you have access to these accounts.
Not retired yet but planning on retiring soon? Since lenders want to see evidence that senior citizens have finances to cover at least the next 3 years (either from their job or retirement accounts), you might be denied if you inform lenders you plan to retire sooner. Where possible, it might be best to wait and apply once you’re fully retired and can access your retirement accounts.
With that said, you aren’t required to report your planned retirement date. If you do plan on retiring soon, just make sure your finances can cover your mortgage payments once your regular income stops.
Your Thoughts About The Loan Term
Can a 70-year-old choose between a 15- and a 30-year mortgage? Absolutely. The Equal Credit Opportunity Act’s protections extend to your mortgage term. Mortgage lenders can’t deny you a specific loan term on the basis of age.
The loan term you’re comfortable with has much more to do with your finances than your age. Many seniors use a 30-year mortgage because of its relatively low monthly payments, but you might decide to use a 15-year or shorter term depending on your intentions for the house.
In most cases, you don’t need to worry about what will happen to your mortgage if you pass away before it’s paid off. Your loved ones can usually sell the house to repay the remainder of your loan, but if you want your family to keep the home, you may want to set up a life estate and put money aside or plan on using insurance to cover the mortgage.
