Should my husband and I refinance our mortgage and add in our credit card debt and our car loan to have a lower monthly payment in retirement?
My husband is retired and receiving Social Security benefits. I am still working but plan to retire in about a year. We have a mortgage, $9,000 in credit card debt, and a $13,000 car loan. We are trying to decrease our monthly amount of payments, so we don't risk not being able to pay our bills each month once I retire. Should we refinance our mortgage and add in our credit card debt and our car loan to have a lower monthly payment in retirement?
Rather than focus on the payments, I like to consider all factors involved. Refinancing will have expenses associated with it that may far outweigh any real benefits. The cost needs to be compared to the savings, if any, in current interest charges. Included in that calculation is the fact that you would be converting the car loan and credit card debt into 30-year debts upon which you will pay interest for 30 years instead of the current terms. You also need to consider whether or not you may even qualify for a refinance on your current incomes. This would be driven by the amount needed for the new loan. You did not mention what the current principal balance is on the mortgage or how much time is left on it. Also, since interest rates are rising, you may actually be giving up a low interest rate mortgage for a higher interest rate mortgage. I'm going to suggest that a refinance, as you propose, is probably not a good idea. Actually, combining the current mortgage balance, with the closing costs, credit card debt, and car loan, all at a higher interest rate, may actually increase your total payment.
Alternatively, consider these options: Transfer the credit card debt to a 0% promotional card so that all of your payments go towards principal. Realize that if there is a transfer fee, that is essentially an interest charge, but will likely be lower than the current interest being charged. If you have very good credit you may be able to find a card at creditcard.com that has no transfer fee. Then aggressively pay down the balance. If the car was purchased at a promotional interest rate, like 0.9% or 1.9%, then it is already lower than your mortgage interest rate. Continue to take advantage of this low rate and pay it down aggressively. If the interest rate on the car loan is higher, explore the best rate on a home equity line of credit and possibly use that to pay off the car if there is any advantage. Then of course, pay off the home equity line to rid yourself of the debt.
The goal is to retire with less debt, rather than the same amount of debt repackaged. After maximizing the portion of payments going towards debt reduction, you may consider working a bit longer to pay off the credit card and car loan if necessary. Or both of you working less demanding part-time jobs during retirement if possible. I wish you the best.
Dear Should I Refinance Our Mortgage and add credit card debt and car loan,
Make it your number one priority to rid yourselves of a car loan ($13,000) and credit card debt ($9,000) prior to your retirement. Do not think to refinance and add more burden to the mortgage unless you are able to get a reduction in interest rates which in this market of increasing interest rates would seem unlikely.
Once you retire, loans and other debt payments must be drastically eliminated to take advantage of enjoying your retirement situation and having enough funds to pay down the mortgage which the amount was not shared within the question. Be cautious, take your time, perhaps delay retirement a couple of months to maximize the accomplishment of paying down the debts (car and credit cards).
This plan will work to benefit both of you if you stay the course. Again, do not add to debt in an interest rate environment that is increasing.
Look at your budget and work smart to make this accomplishment a reality. Be disciplined and smart.
Good luck to the both of you.
Jan Attard, MBA, Wealth Management Specialist
Technical & Fundamental Market Analysis
J. Oliver Maxwell, LLC
Tele: # 925-876-1377
Hi! I will do my best to answer your question. I agree with my colleagues regarding the concern with refinancing the mortgage. I am not certain of how much you owe on your mortgage or when you will be eligible. There are costs associated with refinancing and I would not want to solve one problem only to create another one. If you need to reduce expenses and have good credit, consider establishing a relationship with a credit union. You may qualify for a consolidation loan for the credit card debt or a balance transfer. The other option is to consider refinancing your car loan. Last, but not least, I am not certain if you usually receive a tax refund, but you can apply a portion of your tax refund toward your credit card debt. I hope this helps. Good luck to you.
Some of this depends on what you owe for a mortgage (how much is left and for how long) and how much equity you have in your home. Refinancing a mortgage can have a hefty closing cost fee associated with it, but you might want to consider a 15-year home equity loan. Many times you don't have closing costs when you take out a home equity loan as long as you hold that loan for 3 years or more; you could roll your remaining mortgage, $9,000 in credit card debt and the car loan into one to make the payment lower.
If possible though, perhaps your husband could take a part-time job prior to your full retirement and use that to pay off the credit card debt and car loan; this would leave only the mortgage (which you could still possibly do a home equity for to lower the monthly payments).
You should examine what caused the credit card debt too - just to make sure that once it is paid off, it stays paid off.
This is a decision you will want to make before retire. You will have a much tougher time getting a mortgage once you are both retired.
In general I do like the idea of lower payments in retirement- just be aware under the new trump tax plan the interest on the debt you rolled into the mortgage will no longer be deductible.
Just make sure you are addressing the issues that led you to rack up the credit card debt. As well as knowing that you are likely turning a few years of car payments into a 30 year mortgage.