Mortgage Rates Finally Dropped Below 6% -- Here's When Retirees Should Act and When to Wait

On Feb. 28, mortgage rates did something they hadn't done for more than three years: drop below the 6% mark.

Mortgage rates have been dropping since the start of the year. But the last time rates fell below 6% was September 2022.

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If you're retired, you may be tempted to take advantage of today's slightly lower borrowing rates. Let's review when it makes sense to act and when it pays to sit tight instead.

When to consider jumping on today's mortgage rates

Let's get one thing out of the way: Although today's mortgage rates are lower than they've been recently, they're not low by historical standards. However, they do present an opportunity for certain retirees.

You may want to consider taking advantage of today's mortgage rates by refinancing your existing home loan. This makes sense to do if today's rates are low enough to reduce your monthly payments significantly and if you're having a hard time keeping up with your existing mortgage.

Many retirees live on a fixed income that consists largely of Social Security. And given that this year's cost-of-living adjustment wasn't super generous, lower mortgage payments could do great things for your monthly budget.

But be careful. If you refinance and reset the clock on your mortgage, you may end up taking that debt to the grave. Of course, that's not automatically a terrible thing. But you'll need to consider both the pros and cons of putting a new mortgage in place at this stage of life.

If you've been waiting to downsize, now could also be a good time to get a new mortgage, since rates are a bit lower than they've been. By shedding square footage, you can lower your housing costs and help stretch your retirement savings further.

But if you're going to downsize, make sure there are actual long-term savings involved. You don't want smaller mortgage payments and lower property taxes to be offset by high HOA fees and other costs.

When to consider waiting

Even with mortgage rates falling, jumping into a new home loan may not be your best bet. You may want to consider waiting if you plan to stay in your home and your current mortgage rate isn't much higher than the rates available today.

When you refinance a mortgage, there are costs involved. So it generally makes sense to refinance when rates are significantly lower than when you signed your loan -- meaning at least a full percentage point lower or more.

Also, if you're new to retirement, you may want to settle into your new lifestyle before making big financial or logistical changes. Downsizing, for example, may be part of your plan. And you may have been waiting on mortgage rates to come down to make that move.

But if you only retired a few months ago, adjusting to your new schedule and a new neighborhood at the same time may be jarring. You may want to take one step at a time.

Also, if you're newly retired, you may not have a great sense of how much your lifestyle costs and how much you feel comfortable withdrawing from your IRA or 401(k) each year. It could pay to give yourself a year to work out the kinks before taking on a different set of expenses -- even if your intent is to lower your housing costs by downsizing.

There's no need to rush

Seeing mortgage rates drop below 6% may have been encouraging. But that doesn't mean you should rush into getting a new mortgage.

If you're struggling to keep up with your mortgage payments, you want to stay in your home, and you're certain you can save money by refinancing, it could pay to act now and apply for a new home loan. But if your plans are uncertain, you're new to retirement, and you're not sure how much savings you'll reap by refinancing, it generally makes more sense to sit tight.

Besides, we don't know if mortgage rates will continue to fall in the coming year and to what extent. But if you wait, you may find that you're able to score an even more competitive mortgage rate later on in the year than what you can get today.

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