How Will a Refinance Affect My Monthly Mortgage Payments? | Better Mortgage (2024)

FAQs

How Will a Refinance Affect My Monthly Mortgage Payments? | Better Mortgage? ›

Pros and cons of mortgage refinance

In most scenarios, a refinance will affect your monthly mortgage payment. But whether the amount goes up or down depends on your personal financial goals and the type of refinance you choose.

If you refinance to the same term as your original mortgage, you're further extending the time you have to pay off the loan, meaning your monthly payment will go down. And if you can refinance the loan with a lower interest rate, your monthly payment could go down even more.

The Bottom Line

Refinancing can be a smart financial move if it reduces your mortgage payment, shortens the term of your loan, or provides cash for necessary expenses. However, it can also involve significant closing costs and fees, so you may not realize savings for several years.

It's usually better to make extra payments when:

If you can't lower your existing mortgage rate, a refinance likely won't make sense. In this case, paying extra on your mortgage is a better way to lower your interest costs and pay off the loan faster.

Refinancing allows you to lengthen your loan term if you're having trouble making your payments. The downsides are that you'll be paying off your mortgage longer and you'll pay more in interest over time. However, a longer loan term can make your monthly payments more affordable and free up extra cash.

Refinancing to lower your monthly payment is great unless you're spending more money in the long-run. Moving to an adjustable-rate mortgage may not make sense if interest rates are already low by historical standards. It doesn't make sense to refinance if you can't afford the closing costs.

Fortunately, you can refinance as often as it makes financial sense to do so. A mortgage refinance can help you manage your money more effectively as well as lower your interest rate, remove private mortgage insurance or take cash out of your equity.

When should you not refinance? ›

Moving into a longer-term loan: If you're already at least halfway through the loan term, it's unlikely you'll save money refinancing. You've already reached the point where more of your payment is going to loan principal than interest; refinancing now means you'll restart the clock and pay more toward interest again.

A longer-term loan could result in lower monthly payments, but higher overall costs. For instance, if you have 10 years left to pay on your current loan and you refinance to a 30-year loan, you could end up paying more in interest overall to borrow the money and have 20 extra years of mortgage payments.

The winter holiday season is a traditionally slow time in the real estate market; homeowners want to relax and avoid having prospective buyers visit their homes. Therefore, the demand for mortgage money is less, so lenders lower the spread in order to attract new business. This can be a great time to refinance.

Lowering your monthly mortgage payment by refinancing to a lower rate or extending your loan term can make it easier to pay your mortgage on time every month while also possibly covering your other debts and expenses.

Depending on what kind of loan you are eligible for, refinancing might offer you one or more benefits, including: a lower interest rate (APR) a lower monthly payment. a shorter payoff term.

If you could get a half-point improvement in your interest rate, refinancing could make sense. Avoid focusing too much on specific mortgage rates that you read about or see advertised.

Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month — but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.

Refinancing your mortgage can allow you to change the term of your current mortgage to pay it off faster or lower your monthly payment. It can also be a way to access cash if you're cashing out your equity.

Because refinancing involves taking out a new loan with new terms, you're essentially starting over from the beginning. However, you don't have to choose a term based on your original loan's term or the remaining repayment period.

Applying For A Refinance Results In A Hard Inquiry

This notifies the major credit bureaus that you're applying. This is the type of inquiry that causes a small dip in your credit score. Although credit inquiries stay on your report for 2 years, only inquiries in the last year impact your score.