Should you refinance back to a 30-year mortgage?
Senior Content Writer
Quick insights
- Refinancing back to a 30-year mortgage may lower your monthly payment, but it could increase total interest paid over time.
- Typically, refinancing your mortgage will reset your loan term unless you choose a shorter custom term.
- There’s no formal limit to how many times you can refinance your mortgage, but costs and qualification standards apply each time.
Refinancing replaces your current mortgage with a new one, ideally with loan terms that better fit your goals. If you refinance back to a 30-year mortgage, you reset your loan term, even if you’ve been paying your mortgage for years. This begins a new 30-year amortization schedule. That may lower your monthly mortgage payment, stretch your remaining balance over a longer period and potentially increase total interest paid.
In this article, we’ll evaluate a refinancing scenario and discuss the pros and cons of refinancing back to a 30-year mortgage.
An example scenario
Imagine a homeowner who purchased a condo five years ago with a 30-year mortgage. Within the first three years, they refinanced into a 15-year home loan to build equity faster and reduce long-term interest costs. At the time, the higher monthly payment felt manageable. Fast forward to now:
- The cost of living has increased.
- Financial priorities have shifted.
- There’s a desire for more breathing room in the monthly budget.
Refinancing back to a 30-year mortgage could lower the required monthly payment and improve cash flow, even if it means paying more interest over the long haul. For many, refinancing back to a 30-year mortgage means a longer term. Before deciding whether to go ahead, it’s helpful to learn the advantages and drawbacks that come with extending your loan term.
Pros of refinancing back to a 30-year loan
- Lower monthly mortgage payment: Spreading your remaining mortgage balance over 30 years could significantly reduce what you pay each month.
- Improved cash flow: Additional breathing room in your budget might allow you to do more with your money. For example, build an emergency fund, pay down higher-interest debt, increase retirement contributions or handle rising living expenses.
- Financial flexibility: A lower required payment doesn’t prevent you from paying extra toward principal when you can. You may keep this flexibility but lose the obligation.
Cons of refinancing back to a 30-year loan
- More interest over time: Extending your loan term will increase the total amount of interest paid, even if your interest rate is lower.
- Longer time in debt: If you were close to paying off your mortgage, refinancing back to 30 years may delay that milestone of owning your home free and clear.
- Closing costs: Refinancing usually involves fees such as lender fees, home appraisal fees, title-related costs and recording fees. Those costs should be weighed against potential savings.
How your loan term affects monthly payment and total interest
Even if the mortgage interest rate stays the same, your loan term alone can drastically change your monthly payment, and how much interest you may pay over time. Here are how several cost estimates look for how a $400,000 home loan (6.5% fixed interest rate) across different terms.
These figures are rounded and use just principal and interest calculations. Variable costs like homeowner’s insurance and property taxes are not included.
30-year mortgage
- Estimated monthly payment: $2,528
- Total paid over 30 years: $910,000
- Total interest paid: $510,000
20-year mortgage
- Estimated monthly payment: $2,982
- Total paid over 20 years: $715,000
- Total interest paid: $315,000
15-year mortgage
- Estimated monthly payment: $3,484
- Total paid over 15 years: $627,000
- Total interest paid: $227,000
How the numbers compare across these options
- A 30-year term generally offers the lowest required monthly payment but results in the highest total interest over time.
- Interest saved on the 20-year fixed rate mortgage vs. 30-year mortgage: Approximately $195,000 less interest. You’d pay about $454 more per month than the 30-year option but potentially save nearly $200,000 in interest.
- Interest saved on the 15-year fixed mortgage vs. 30-year: Approximately $283,000 less interest. Compared to a 30-year loan, the monthly payment is roughly $959 higher, but total interest paid could be reduced substantially.
Stretching your loan from 15 years to 30 years could lower your required monthly payment by nearly $1,000, but potentially increase total interest paid by over $283,000. That’s the tradeoff. That’s why the right choice of loan term depends on your finances, needs and long-term plans, not just the total interest math.
How many times can you refinance a mortgage?
There is no official legal limit to how many times you can refinance your mortgage. However, each refinance requires meeting credit and income guidelines, sufficient home equity, covering closing costs and satisfying lender waiting periods. Frequent refinancing could reduce long-term savings if fees outweigh benefits. That’s why it may help to calculate your refinance break-even point, which is how long it might take for your monthly savings to offset the upfront costs.
In summary
So, should you refinance back to a 30-year mortgage? Possibly, if you want more cash flow and flexibility matters to you right now. The right choice depends on your current financial position, long-term plans and comfort with tradeoffs. Review your projected payment, total interest costs and break-even timeline to determine whether refinancing back to a 30-year home loan aligns with your financial picture.
