The lowest mortgage rates in history are helping older borrowers ease their debt burden and allowing baby boomers to sock money away for retirement, mortgage brokers say.

"I've gotten a lot of people who are not quite to retirement, but can kind of see it on the horizon," said Cheryl Mehe'ula of mortgage broker E.F. Foley in San Jose.

"They want a payment they can really live with over a longer term," Mehe'ula said.

The average rate of a 30-year fixed mortgage dropped to 3.36 percent, the lowest it has been since mortgage giant Freddie Mac began record-keeping in 1971, before rising slightly last week. A 15-year fixed loan fell to 2.69 percent.

The low rates carry special urgency for boomers and seniors. The median value of mortgage debt for people 55 to 64 years old has increased 187 percent in the past two decades, probably because many pulled out home equity during the housing bubble, according to a report by AARP. The median amount of debt for people ages 65 to 74 has also increased sharply, the AARP said.

There's one catch to refinancing and it's a big one: The borrower has to have enough equity to meet tough credit requirements.

"I'm certainly advising clients, if they're not underwater, to definitely lock in the best fixed rate they can," said Michael Olff, a financial planner with Gateway Financial Advisors in Walnut Creek.


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For those who can take advantage of them, the low rates can produce big savings.

For example, a 30-year, $300,000 mortgage at 3.36 percent carries a monthly payment that's almost $200 less than one at 4.5 percent. A 15-year, 2.69 percent loan would carry a higher monthly payment than the 30-year loan but would pay off sooner and save $70,000 in interest.

Carol Bogosian, an actuary and president of CAB Consulting in Chicago, said too many people "just look at the payment and don't think through this." A refinance resets the loan period to another 30 or 15 years, Bogosian said.

"That means you will not only be paying longer but building the equity slower than your current shorter-term mortgage," she said. Also, fees may be wrapped into the loan, increasing the balance.

"You can make adjustments for these issues by selecting a shorter loan term and paying down principal in advance of the refinance, but most don't," Bogosian said. "You want to have that house paid off at some time, especially when you're in your 80s when you have long-term health care needs."

Financial planner Olff said many of his clients are choosing shorter-term loans.

"They're opting for reducing the time, so somebody 55 would be looking at a 15-year loan and paying it off at retirement.

"It really depends on the person's financial plan and risk profile. Do you want your house paid off or a mortgage you have to pay out of your 401(k) or Social Security?"

He encourages clients who aren't retired and who refinance for the extra cash to put the savings into their retirement accounts. "It's not money they should just go out and blow," he said.

Julie Schatz of Investors Capital Management in Menlo Park said she's advising clients to refinance because "a fixed-rate 30-year mortgage is the best hedge against inflation."

Retired Saratoga physician Donald Rawson said he's refinancing a 4.75 percent loan and saving about $500 a month.

"We had five children and just finished paying off the college expenses not long ago, and upgraded the house a few years back," he said. "We had a pretty good-size mortgage."

When interest rates began reaching new lows he contacted Doug Jones at Mortgage Magic in San Jose.

Jones said, "It just blows me away, what the rates are." The new low reached in early October didn't cause a spike in business because rates have been low all year, he said. "But it's been a steady business."

Average rates started the year below 4 percent and have dropped all year long, save for one week in March when they briefly popped up to 4.08 percent, before resuming their downward march.

Some older borrowers, like retired teacher Wayne Johnson and his wife, Diane, are tapping equity for home improvements.

"We have been remodeling the bathrooms, painting, replacing the deck, doing some yardwork -- you name it," Johnson said. "The change in interest rates made it very favorable for us to do it."

It's his second refinance in a year on the home he has owned for almost 35 years in a neighborhood near the high-end shopping center Santana Row in San Jose.

"We have lots of equity in the house. It was a good time to pull some of it out. With Santana Row expanding again, some houses a couple of streets down are going in the high-price range," he said.

But refinancing is "much more tedious than it was before," warned Perry Harmon at Financial Strategies Group in Berkeley.

"The banks are going to look at every single little thing, and they're backlogged," so everything takes longer. Borrowers have to be patient and be prepared to answer a lot of questions, he said.

For details, including tables with historical interest rates, go to www.freddiemac.com.

Contact Pete Carey at 408-920-5419. Follow him at Twitter.com/petecarey.