Does Refinancing Make Sense Near Retirement?

MIAMI – If you’re approaching retirement and wondering whether refinancing your mortgage still makes sense, you’re far from alone. Millions of homeowners across the country are asking the same question as mortgage rates shift, federal policies change and the financial landscape heading into 2026 looks markedly different from just a few years ago.

Here’s a clear breakdown of what the experts are saying, what the market looks like right now and what other financial changes in 2026 could influence your decision.

For decades, the goal for many Americans was simple: pay off the mortgage before retirement. But attitudes are shifting.

In an article from The Mortgage Reports, Erik J Martin writes, “In the past, retiring with the mortgage paid was a lifelong goal. But many contemporary retirees have new attitudes around mortgage debt than previous generations.”

Martin outlines several reasons pre-retirees are considering a refinance right now:

Rates are still favorable: “Although mortgage rates are beginning to recover from their previously record low status, they’re still lower than the double-digit rates that many older adults may have experienced years ago as home buyers,” Martin writes.

Reducing monthly expenses: “Depending on your current loan, if you refinance to pay off a mortgage with a higher interest rate and do not take out cash, you may lower your monthly mortgage payments. This could increase cash flow to pad your retirement savings or other personal finance goals.”

It’s cheaper than a reverse mortgage down the road: Martin notes that reverse mortgages “will generally carry higher upfront costs to close the loan” in addition to higher interest rates. “Cash-out refinancing before retirement, while you’re still employed, may save money in the future, especially if you suspect that you do not have enough retirement savings to cover expenses like medical costs or long-term care.”

Your income is higher now: “Underwriting a conventional loan is generally easier when you have employment and monthly income, as opposed to when you’re retired and without a traditional salary,” Martin writes.

That last point is critical for anyone weighing the timing of a refinance. Your ability to qualify for a new loan often hinges on demonstrating steady income — something that becomes more complicated after you stop working.

Martin addresses this question directly: “Waiting until retirement to refinance your mortgage loan is an option. Yet, if your income drops after retirement, you may have difficulty qualifying. Mortgage lenders use a borrower’s income to determine whether or not they can repay a new loan. They’ll also examine your debt-to-income ratio (DTI) and credit score to ensure that you’re a candidate for loan underwriting.”

For those unfamiliar with the term, your debt-to-income ratio is a measure lenders use to compare your monthly debt payments to your gross monthly income. Generally speaking, a lower DTI signals to lenders that you’re in a stronger position to take on new debt.

Martin adds that “since retirees generally do not have a monthly salary, you’ll need to qualify for a refinance with funds from Social Security, pension, and other forms of income.”

This is a practical reality that many people don’t consider until they’re already retired. If your post-retirement income is significantly lower than what you earned while working, securing favorable refinance terms could become more difficult.

Understanding the current landscape is essential before making any refinance decision. In an article from Amerisave, Casey Foster provides a detailed snapshot.

“According to the Mortgage Bankers Association’s latest weekly survey, the refinance index increased 4% for the week ending October 17, 2025 and sits 81% higher than the same week one year ago,” Foster writes. “That’s a significant jump in refinance activity.”

She adds: “The Fed’s rate cuts in 2025 represent a meaningful decline from the peaks we saw earlier in 2025, when 30-year rates averaged 6.81% for the year according to Bankrate data.”

But there’s a catch. Foster points to what she calls the “refinance paradox.”

“While refinance activity has increased dramatically, the vast majority of homeowners, about 82.8% according to Redfin’s Q3 2024 data, still have rates below 6%,” Foster writes. “This creates what I call the ‘refinance paradox’ where the market is active, but most established homeowners won’t benefit from a simple rate-and-term refinance.”

In other words, if you locked in a low rate during the pandemic era or in years past, the current market rates may actually be higher than what you’re already paying. That means a standard rate-and-term refinance might not save you money. But for homeowners who currently hold rates above 6.5% or 7%, the picture is different.

Foster breaks down specific scenarios to help homeowners evaluate their options.

Scenario 1: You can secure a meaningfully lower interest rate

“The traditional wisdom says you should refinance when you can reduce your rate by 1% or more. Honestly, that’s overly simplistic,” Foster writes. “The real question is whether the interest savings justify the costs and whether you’ll stay in the home long enough to reach your break-even point.”

She provides a concrete example using a $300,000 mortgage balance with 25 years remaining:

Current loan: $300,000 at 7.0% = $2,120/month (principal plus interest) Refinanced loan: $300,000 at 6.0% = $1,799/month (principal plus interest) Monthly savings: $321 Annual savings: $3,852

“Now if your closing costs are $6,000, you’d break even in about 18.7 months. After that, every month is pure savings. Over the remaining 25 years, you’d save approximately $96,300 in interest,” Foster writes.

Those numbers illustrate a key takeaway: the break-even point matters. If you plan to sell your home or move within a year or two, the upfront costs of refinancing may outweigh the savings. But if you intend to stay in your home for several more years, the long-term savings can be substantial.

Scenario 2: Adjusting your loan term

Changing the length of your mortgage is another reason homeowners refinance, and Foster calls it “one of the most powerful levers you have in refinancing.”

Some homeowners refinance to extend their term and lower monthly payments, she explains. Using the same $300,000 example:

Current: $300,000 at 6.5% with 20 years remaining = $2,242/month Refinanced: $300,000 at 6.5% with 30 years = $1,896/month Monthly relief: $346

“This makes sense if you’re facing temporary financial pressure. Maybe you lost a job, have unexpected medical bills or your business income fluctuates,” Foster writes. “But you need to understand the trade-off. By extending the term, you’ll pay significantly more interest over the life of the loan. In this example, you’d pay an additional $101,760 in interest over those extra 10 years.”

That’s a significant cost to consider. While a lower monthly payment may provide breathing room in the short term, extending your mortgage by a decade means you’ll carry that debt further into retirement — and pay considerably more for the privilege.

Foster sums it up clearly: “Refinancing is a financial tool, not a financial strategy.”

She says it makes sense when it helps you accomplish a specific goal — “like reducing your interest rate meaningfully, adjusting your loan term to match your financial capacity, eliminating PMI, accessing equity for home improvements or stabilizing payments by converting an ARM.”

On the flip side, she cautions that refinancing “doesn’t make sense when you’re chasing marginal rate improvements without considering costs, extending your term unnecessarily or using it to fund lifestyle expenses.”

Any refinance decision should be made in the context of your broader financial picture — and several changes coming in 2026 could affect your monthly budget and retirement planning.

1. Medicare costs are rising: Medicare premiums are increasing to nearly $18 a month. For retirees living on fixed incomes, every dollar counts. When combined with other rising costs, it underscores the importance of managing your mortgage payment as efficiently as possible.

2. Retirement contribution limits are increasing: For homeowners considering refinancing that could free up a few hundred dollars per month, extra funds could potentially be directed toward maxing out retirement contributions — a strategy that may pay off significantly in the long run.

3. There’s a new exception for long-term care insurance withdrawals: This new rule (which lets people take limited penalty-free withdrawals to pay for long-term care insurance) could affect how pre-retirees think about accessing funds for long-term care coverage, which is one of the expenses Martin flagged as a reason some people consider cash-out refinancing before retirement.

And for anyone nearing retirement, the clock matters. Qualifying for a refinance is generally easier while you still have steady employment income. Waiting could make the process harder — or close the door entirely.

The smartest approach is to run the numbers for your specific situation, factor in closing costs and break-even timelines, and consider how a refinance fits into the bigger picture of your retirement plan — especially with rising Medicare premiums, changing contribution limits and new rules around long-term care withdrawals all taking effect in 2026.

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