Older Homeowners Are Struggling to Refinance — Despite Having Great Credit and Equity

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You’d think older homeowners would have a pretty easy time refinancing their mortgages. Read on to see why you’d be wrong. 

These days, refinancing a mortgage doesn’t make a lot of financial sense for many homeowners. That’s because a lot of people refinanced back in 2020 and 2021, when mortgage rates fell to record lows. To refinance now would, for a large number of property owners, mean getting stuck with a higher borrowing rate on a mortgage, which won’t result in savings.

That said, a cash-out refinance is an option for accessing home equity that could, for some borrowers, make more sense than a home equity loan. And it could make sense today, even with mortgage rates being higher.

But a recent New York Times report reveals that in recent years, older homeowners have struggled to get approved to refinance their mortgages. And the reason boils down to two key factors.

It’s a matter of income and mortality

The New York Times says that older adults have higher credit ratings than any other age group. They also tend to have large amounts of home equity due to having owned their homes for many years.

In spite of that, recent studies have shown that older homeowners are more likely than their younger counterparts to be denied a refinance. And there are a couple of factors at play to explain why.

The first is income, or a lack thereof. Many older people either retire eventually or shift over to part-time work, resulting in lower incomes. But that could be a barrier to getting a mortgage, or any type of loan, for that matter.

Then there’s the matter of mortality. Lenders are often hesitant to let older homeowners refinance a mortgage because then they have to worry about the borrower potentially passing away before their loan is paid in full.

Of course, in these situations, lenders do have recourse, since mortgages are secured by the properties they’re used to finance. But it’s a risk for lenders nonetheless. And that’s why refinancing is an option today’s retirees might struggle to take advantage of if borrowing conditions become more favorable for it.

Tapping home equity may also be a challenge

Although refinancing a mortgage is not such an attractive option these days, older borrowers may seek to tap their home equity if a need to access money arises. But even that may prove challenging.

Home equity loans don’t necessarily have the same lengthy repayment terms as mortgages. But even if mortality issues don’t arise in the course of a home equity loan application, there’s still the income factor to consider. Lenders may not want to take a chance on borrowers whose sole source of income is a modest Social Security check.

Of course, a big problem that might emerge from this trend is that a growing number of seniors might seek to rely more on credit cards for borrowing purposes in the absence of being able to tap home equity. And that could mean subjecting themselves to very high interest rates and getting trapped in a dangerous cycle of debt.

All told, it’s unfortunate that seniors looking to refinance their mortgages might struggle to do so. But it’s a trend that aging Americans should be aware of, so they can plan around it.

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