Refinancing doesn't restore the repayment term of your loan, but it does replace your current loan with a new one. You may be able to choose between different offers for your new loan depending on your objectives, including a longer or shorter repayment period. For example, if you're refinancing your mortgage, you might find that the top mortgage refinancing lenders offer several repayment terms, including 10, 15, and 30-year terms. So how much should mortgage rates go down before considering whether it's worth refinancing? The traditional rule of thumb is that you should refinance if your rate is between 1% and 2% below your current rate.
A purchase loan is a traditional mortgage, in which a person borrows money from a mortgage lender or bank to finance the purchase of a home. A refinance offers mortgage owners the ability to update or change the terms of their loan by obtaining a new loan to replace the existing one.
Refinancing and extending the term of your loan can lower your payments and keep more money in your pocket each month, but you may pay more interest in the long term. On the other hand, refinancing with a lower interest rate for the same or shorter term than what you have now will help you pay less overall.
Refinancing may lower your credit score by some points, but the impact on your credit rating will only be temporary. Applying for a loan creates a difficult enquiry.
Depending on the reason you're refinancing in the first place, you could pay higher interest than you have on your current loan. For example, if you need more time to repay the loan and refinance it for a longer term, you'll end up paying more interest, even if the rate is lower.