How to lower mortgage payments by refinancing

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. And if you’re concerned about your ability to make your current mortgage payment in the future, lowering your monthly payment now can help relieve that pressure.

Whenever you refinance, you’re responsible for paying closing costs. Remember, too, that it’s common to refinance into another mortgage of the same term, typically another 30-year mortgage. That means you’d be restarting another 30-year mortgage after you’ve already owned your home for a number of years. As a result, you’ll probably pay more in interest over the life of the loan. So while your monthly mortgage payments would decrease, your total costs over the long term would likely increase. It’s important to discuss your situation with your lender to make sure you’re comfortable with how these costs will impact your overall financial picture.

The breakeven point is how long it takes for a reduction in your monthly payments to equal the costs of refinancing. If you plan to sell your home before the breakeven point is reached, you probably wouldn't recover these closing costs. For example:

$5,000 in closing costs ÷ $200 in monthly payment savings = 25 months to break even

If you choose to refinance to lower your monthly payments, you may also have the opportunity to make additional changes to your loan at the same time. Depending on your circumstances, you may also be able to switch to a fixed-rate mortgage or borrow from a portion of your available home equity. Talk to your lender about what you’d like to accomplish and see what’s achievable for your situation.