When most people think about refinancing their mortgage, the first thing that comes to mind is locking in a lower interest rate. While that's certainly a very common reason to refinance, it's not the only way to lower your monthly mortgage payment.
If you're looking to reduce your monthly expenses—even if current interest rates aren’t lower than your existing one—there could be another option: Extending your loan term.
Why Loan Term Matters in Monthly Payments
Your loan term is the length of time you agree to repay your mortgage. Standard options include 15-year and 30-year mortgages. The longer your loan term, the more months you have to pay off your principal balance—meaning your monthly payments will typically be lower.
How Refinancing with a Longer Term Works
When you refinance, you’re essentially replacing your current mortgage with a new one. This gives you the opportunity to change the structure of your loan, including its length.
Let’s say you’ve been paying your 30-year mortgage for five years. If you refinance back into a new 30-year loan, you’re resetting the clock—but also stretching your payments out over a longer horizon. Even if your interest rate remains the same, the monthly payment will be lower because it’s now amortized over more months.
This isn’t a loophole or a gimmick—it’s a completely valid strategy used by many homeowners seeking financial flexibility.
The Benefits of Extending Your Loan Term
- Lower Monthly Payments: The most immediate benefit is the potential for reduced financial strain month-to-month.
- More Room in Your Monthly Budget: Free up cash for other priorities—whether that’s paying down high-interest credit cards, covering tuition, or investing in home upgrades.
- Short-Term Relief: Could be particularly helpful during life transitions such as growing a family, job changes, or economic uncertainty.
When It Makes the Most Sense
Refinancing to extend your term might be a smart strategy in several situations:
- You’re struggling with cash flow and need lower payments now
- You're carrying other high-interest debt you'd like to pay down faster
- You expect your income to rise in the future, at which point you can make additional payments or refinance again
- You’re not planning to stay in your home long-term and just want manageable payments in the short term
Keep the Big Picture in Mind
Extending your term could reduce your month-to-month costs, potentially giving you financial breathing room in your monthly budget. However, extending your term could also increase the total interest you pay over the life of the loan. That’s why it’s important to weigh the short-term relief against the long-term cost.
Still, extending your term might be the right decision for your circumstances, especially if you’re expecting changes in your financial picture in the future.
Ready to Explore Your Options?
At Newrez, we strive to offer our customers workable solutions for reaching their homeownership goals. Extending your loan term could be a powerful way to take control of your finances and make your mortgage work better for you and your circumstances.
Speak with a loan advisor today to find out if this strategy makes sense for you. Or, use our refinancing calculator to estimate your new monthly payment.
