Should You Refinance Back to a 30-Year Home Loan?
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When you refinance a 30-year mortgage to get a lower interest rate, you can also pick a new term — that is, the number of years you’ll get to pay your mortgage back.
One common option is to maintain the current repayment term. For example, if you got the original mortgage five years ago, you can refinance to a 25-year term.
You can also refinance to a shorter term. Using that same example, you could reduce the payoff term from 25 years to 20 years instead. When you lock in a lower refinance rate, this strategy can save thousands of dollars in interest over the life of the loan, though your monthly payments may increase.
You might also consider starting over with a new 30-year term. Maybe your financial situation has changed and you want to lower your monthly mortgage payments. That’s one way to save in the short term, but over time, you’ll pay a lot more in interest.
Let’s compare the advantages and disadvantages so you can decide what’s best for you.
» MORE: Best mortgage refinance lenders
Pros of refinancing back to a 30-year loan
More flexibility: With a 30-year loan, you have the option of making extra payments when you can afford it and making minimum payments at other times. You can still pay off the mortgage in less than 30 years. Check with your lender to make sure it allows extra payments and that they’re applied toward the principal. (Try our early mortgage payoff calculator to see how much you could save.)
Lower monthly payments: When you spread your new loan over 30 years, you get the lowest monthly payments. (In some circumstances, it’s still possible to lower your monthly payments if you choose a shorter term. However, the monthly principal and interest will still be higher than if you chose a 30-year loan.)
Are you having trouble making your mortgage payments? Ask your lender if you qualify for loan modification or forbearance. If times are tough, you could get lower monthly payments without refinancing — but you’ll need to provide proof of financial hardship, and it might impact your credit score.
Cons of refinancing back to a 30-year loan
Costlier in the long run: When you refinance and start over with a 30-year loan, you’ll pay more interest over time, because you'll make more payments. Even a small difference — say, stretching your remaining mortgage payments from 25 to 30 years — can amount to thousands of dollars more in interest over the life of the loan. (See below for examples.)
A higher interest rate: Generally, interest rates on 30-year fixed-rate loans are higher than the rates on 15-year fixed-rate loans, for example.
Examples: How your loan term affects monthly payment and interest
With the pros and cons in mind, let’s run some sample numbers.
In the early years of paying off your mortgage, most of your money goes toward interest. In the latter years, most of each payment goes to pay down the principal. Try our mortgage amortization calculator to understand how your payments change over time.
In these examples, let’s assume a few things:
The original mortgage was a 30-year fixed-rate loan for $300,000 at 6.5% APR.
You’ve had your mortgage for five years (with 25 years remaining).
You are refinancing the remaining balance of $280,000 at 5.5% APR.
Your refinance closing costs will be 3% of your new loan amount.
What can you expect if you refinance to the same term, a shorter term or a longer term? Here are some sample scenarios from NerdWallet’s mortgage refinance calculator.
Same term: If you refinance at 25 years
It’s a savings double whammy: Your monthly principal and interest would drop from $1,896 to $1,727. With a lower interest rate, you’d also save in total interest paid over the life of the loan. (Nice!)
Difference in monthly payment: $169 less/month.
Difference in lifetime interest: $40,484 saved.
Shorter term: If you refinance to 20 years
Your monthly principal and interest would go up a little, from $1,896 to $1,934. If you can swing those few extra bucks every month, you’d save a boatload in interest over time. In fact: You’d save more than twice as much in lifetime interest, compared with the example above.
Difference in monthly payment: $38 more/month.
Difference in lifetime interest: $115,875 saved.
Longer term: If you refinance to 30 years
Because you’re spreading the payments out over a longer period, your monthly principal and interest would drop from $1,896 to $1,597. However, there’s a trade-off: Even with a lower interest rate, you’d still pay more in interest over the life of the loan.
Difference in monthly payment: $300 less/month.
Difference in lifetime interest: $12,475 more paid.
How many times can you refinance a mortgage?
Let’s say you already refinanced your mortgage, but now you want a different term. Can you refinance again?
You can refinance as often as you want, with a few exceptions. And you pay closing costs and fees with each refinance, so multiple back-to-back refis could end up costing more than you save. Do the math to find your refinance break-even point, which is when savings equal costs, to see how often a refinance might be worth it.
If this is your first refinance, see if your mortgage has what’s known as a “seasoning requirement.” The Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) require the loan to be at least six months old before they will approve a streamline refinance, which is a type of refinance that involves less documentation than usual.
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