One Great Way to Protect Retirement Savings: Refinance
August 13, 2009
Getting the best rates on CDs, savings accounts, and checking accounts is one way to protect retirement savings. Another strategy is to take advantage of low mortgage rates to refinance for maximum long-term security.
By refinancing to a low fixed rate loan while rates are low, you may be able to improve your financial situation for years to come. My colleague Richard Barrington has been hitting on this point for the past couple months.
A Well-Done Refinance Can Make Savings Planning Easier
Let's take the example of a couple nearing retirement age with good income that has a first mortgage of $250,000, a variable interest rate home equity line of credit of $150,000, and a home value of $700,000. While the variable interest rate on that HELOC may be low now, it could rise.
Locking into a 5 percent first loan that pays off both the original first and the HELOC may be a wise decision.
Certainly from a savings planning perspective it is valuable to have that fixed number in terms of monthly expense, and know that that number will not go up unless you refinance again.
Refinance Dangers Similar to Deposit Account Dangers
If you're worried about the interest rate on your savings account going down, you may want to consider the effect of an interest rate rise on your HELOC. Inflation, if it hits, can cut both ways. Not to mention the tougher income requirements that may make refinancing once you're already retired more problematic.
This is not a call to refinance, only a reminder that wealth preservation requires smart planning.
