If you’re a senior, you may have thought about taking advantage of record-low interest rates and refinancing your mortgage to save money or access your equity. However, you might also be wondering whether you can qualify for a refinance with your retirement income.
How to refinance for seniors
The steps to refinance as a senior are essentially the same as the steps to refinance as a younger adult. One of the main differences is that you might be submitting Social Security statements instead of W-2s, and your assets could play a bigger role than your income in qualification.
Here’s how the refinancing process generally works:
- Establish your goals for refinancing. Ask yourself if you want a lower interest rate, a longer or shorter loan term, a pile of cash, or all of these.
- Check your credit. Figure out if your credit score is high enough to qualify for a conventional refinance or if you might want to consider an FHA refinance.
- Gather your most recent statements. Get statements from Social Security, your pension, your retirement accounts, and any other documentation of your income and assets.
- Shop around. Request quotes from several mortgage lenders to learn about your refinancing options.
- Choose the right loan. Find a loan that offers the best value and meets your needs.
- Apply for the loan and begin the underwriting process. Promptly supply any additional documentation your lender requests, such as signed tax returns and proof of homeowners insurance.
- Close. Close on your refinance and enjoy your improved financial situation.
Refinance program options for seniors
Employment income is not a requirement to get a mortgage, and lenders aren’t allowed to discriminate based on an applicant’s age (you just have to be old enough to legally agree to a contract). So, you can still qualify for a mortgage if you’re over the age of 60 or retired.
Along with Social Security income, lenders will count distributions from retirement accounts, such as 401(k)s and Roth IRAs, as long as their calculations show that this income will be available for at least three years after closing.
Important: Government refinance programs for seniors aren’t really a thing. While many mortgages are guaranteed or supported in some way by federal taxpayers, these mortgages are open to all adult homeowners who qualify financially. State housing finance agencies sometimes have programs to help struggling senior homeowners, however.
Rate and term refinance
A rate and term refinance, also known as a traditional refinance, is a type of mortgage refinancing that meets Fannie Mae's or Freddie Mac’s requirements. It can be the most cost-effective way for seniors in good financial standing to refinance their home loans.
A conventional rate and term refinance can give you a lower interest rate, a shorter term, or both. If you have at least 20% equity, you won’t have to pay for private mortgage insurance, and these loans don’t have the additional costs that FHA and VA loans do.
Cash-out refinance
Seniors who want to do a cash-out refinance have many options, including a conventional loan, HomeReady cash-out refinance, FHA cash-out refinance, and VA cash-out refinance. This mortgage type will be most helpful if you can get a lower rate on your existing mortgage in the process. If not, a second mortgage might be a less expensive option.
Increasing how much you owe on your home during retirement goes against the conventional wisdom of paying off your mortgage before retirement. Still, it’s always worth checking to see if the usual advice makes sense in your situation.
When mortgage rates are low and you have enough cash flow from retirement accounts, Social Security, and other assets to make monthly mortgage payments, a cash-out refinance can be a good option to explore. It can help you unlock some of the equity in your home and allow you to enjoy your retirement more.
Fannie Mae HomeReady refinance
This loan may be a good fit for seniors because it’s designed for low-income borrowers. In 2024, the average monthly Social Security benefit for retired workers is hovering around $2,000, and it’s the sole source of income for many retirees.
Low-income borrowers whose existing mortgage is owned by Fannie Mae may be eligible for a HomeReady refinance. This loan merely requires that you have a credit score — no minimum score applies. The income limit to qualify is 80% of the area median. You only need to have 3% equity (97% LTV).
Fannie Mae RefiNow
This refinance program can help lower-income borrowers who have a Fannie Mae mortgage. You may be eligible if your income doesn’t exceed specified limits for your area, you haven’t missed more than one payment in the last 12 months (and no missed payments in the last six months), and you have a credit score of 620 or higher.
With this loan, you can finance your closing costs as long as your new monthly payment is lower and your interest rate will be at least 0.5% lower. Your debt-to-income ratio (DTI) can be as high as 65% and Fannie Mae will cover the appraisal fee.
Good to know
Most loans don’t allow a DTI higher than 50%. A generous DTI limit can help seniors whose retirement income is lower than their working income.
Freddie Mac Enhanced Relief Refinance
If your home loan is owned by Freddie Mac but your loan-to-value ratio is too high to qualify for a standard refinance — perhaps your mortgage is underwater — you may want to consider this program.
A high LTV ratio typically results in a higher rate, but the goal of this program is to make homeowners’ payments more affordable with a lower rate, shorter term, or fixed rate instead of an adjustable rate. A mortgage that can help you stretch your limited resources in retirement is worth a look.
Renovation refinance
Just because you’re a senior doesn’t mean you stop wanting to improve your home. In fact, renovations can be extra important to seniors who want to stay in their homes indefinitely. Certain improvements can make homes safer and more accessible as strength and mobility decline, and everyone needs a watertight roof over their head.
Renovation loans, like the Fannie Mae HomeStyle Renovation and Freddie Mac CHOICERenovation, can help senior homeowners replace their old mortgage with a new mortgage while also financing home improvements.
Tip: Renovation mortgages require you to jump through extra hoops to complete renovations, like submitting copies of purchase contracts and specifications to your lender and getting lender approval for change orders. You might prefer a more straightforward option to pay for your home improvements, such as a cash-out refinance or home equity line of credit.
FHA streamline refinance
Seniors who already have an FHA loan may want to consider an FHA streamline refinance. This loan doesn’t require an appraisal or credit check, which saves you money and allows you to refinance even if your home’s value has decreased or your credit has gotten worse.
An FHA streamline refinance is meant to provide a lower interest rate when refinancing from one fixed-rate mortgage to another, or payment stability when refinancing from an adjustable-rate to a fixed-rate mortgage. Stability and saving money are valuable benefits for seniors who need their retirement income and savings to go as far as possible.
Tip
Because of the expensive mortgage insurance required with FHA loans, seniors who qualify may be better off with a conventional loan. It’s also not the right choice if you need to cash out some of your equity.
VA IRRRL
Qualifying military service members with a VA loan may want to consider refinancing into a VA interest rate reduction refinance loan (IRRRL). Similar to an FHA streamline refinance, a VA IRRRL may be appealing if your income or home value has decreased. A drawback to this loan is the VA funding fee you’ll have to pay, which equates to 0.5% of the loan amount.
Learn More: VA Refinance: 3 Ways to Refinance a VA Loan
Should a senior refinance their mortgage?
Seniors who want to be debt-free in retirement may not want to refinance into a longer loan term. However, you might be surprised to find that lenders offer terms other than 15- or 30-year mortgages. If you currently have eight years left on your mortgage and you don’t want to restart the clock on a 15-year loan, ask about refinancing into a five-, eight-, or 10-year loan.
Being debt-free isn’t an important (or realistic) goal for many seniors, though. If this describes your situation, you may want to refinance to take advantage of the equity in your home. As long as you can afford the monthly payments on your new loan, refinancing can allow you to access more equity at a lower cost than a reverse mortgage would.
Tip: Like all homeowners, as a senior, you’ll want to consider the breakeven period before refinancing. For instance, if you might move before recouping your closing costs, you may want to skip it.
There are a few other things you’ll want to consider before refinancing your mortgage as a senior. Think about whether you might end up downsizing, moving in with a relative, or relocating to a senior living community as you age. And, if you’re married, also think about whether you or your spouse might want to move out upon the other’s passing.
