There are always risks associated with refinancing your mortgage. After you refinance the loan you are starting from scratch with your loan’s amortization. This means the majority of your payment in the early months of the loan is paid directly to the lender in interest; mortgage loans are “front loaded” with interest and very little of your payment is applied to pay down the loan balance during this time. If you are lowering your monthly payment by extending the term, you will pay more over the course of the loan for this lower payment. This is fine if you plan on refinancing again later; however, if you keep this mortgage for a long period of time it will cost you significantly more.
Qualifying for a better interest rate to lower your monthly payment amount is a no-brainer; however, what if your credit prevents you from getting a better interest rate? You can still lower your monthly payment by choosing a mortgage with a longer term length. Term length is the amount of time your lender grants you to repay the loan. Common term lengths are 15 to 30 years; however, there are now 40 and 50 year mortgages that will give you the lowest payment amount possible. If you extend the term and qualify for a lower interest rate you will have an even lower payment amount