How to refinance into a 30-year loan

Here are the basic steps — Bankrate’s refinancing guide offers more details.

1. Make a plan. Do you want to lower your rate? Pull out equity for home improvements?
2. Check your credit score. The best 30-year refinance deals go to borrowers with credit scores of 740 or higher.
3. Shop around. Use Bankrate to compare offers on 30-year refinances and find the best deal for you.
4. Compare deals. The interest rate isn’t the only thing to consider in a 30-year refinance. You’ll also want to weigh expenses such as closing costs and points.

Why compare 30-year refinance rates

Mortgage rates and closing costs can vary widely from lender to lender, and shopping around can save you thousands over the life of the loan. In a report published in 2018, mortgage giant Freddie Mac said borrowers could save an average of $1,500 over the life of the loan by getting one additional rate quote, and an average of $3,000 by seeking out five quotes. Bankrate can help you compare deals and find the best 30-year refinance rate.

Pros and cons of a 30-year fixed refinance loan

Pros of a 30-year refi:

• Lower monthly payments: By stretching out the loan over three decades, you get lower monthly payments compared with shorter loan terms.
• Provides more monthly cash flow: If you need money to pay down student loans or invest, the 30-year fixed gives you the most flexibility.
• Plenty of choices: The 30-year fixed is the most popular type of mortgage, so there’s no shortage of lenders and loan programs to choose from.

Cons of a 30-year refi:

• More total interest paid over the life of the loan: Those lower payments come with a downside — you’re paying a lot of interest over the term of a 30-year loan.
• Longer terms have slightly higher mortgage rates overall: Lenders are taking on more risk by extending a rate for three decades, so 30-year loans carry higher interest rates than 15-year loans.
• It takes longer to gain equity: A 30-year repayment schedule means you’re paying down the balance at a slower pace so not only will it take longer to build equity but the interest paid each month will also decline at a slow pace.

Should you refinance into a 30-year loan?

There are two common reasons to refinance: to reduce monthly mortgage payments or to save on the overall interest you pay on your house over the long term. In some cases, refinancing will accomplish both of those goals, but not always. With rates at record lows, millions of homeowners could benefit from refinancing. Here are a few things to consider when deciding if it's the right time to refinance:

• Your goal: Extending the length of your loan will lower your monthly payments while increasing the interest you pay over the life of the loan. Shortening the length of the loan will lower the interest you pay over the life of the loan but often increases your monthly payments.
• How long you'll be in the home: Refinancing generally only makes sense if you plan to spend several more years in your home. It can sometimes take years to break even on the cost of refinancing. If you won’t be in your home for much longer, it might not make sense to refinance.
• Your ability to qualify: Refinancing might make sense for you, but that doesn't necessarily mean you'll qualify. Lenders take into account a number of factors when considering whether to extend you a refinance offer, including the amount of equity you currently have in the home, your income and your credit score.

Of course, there are other reasons for choosing to refinance. A common reason is to tap into home equity. If you have enough equity in your home (at least 20 percent), you can use a cash-out refinance to pay for expenses such as home improvements, to get rid of credit card debt or to pay for emergencies. Opting for a 30-year cash-out refinance not only provides a chunk of cash for major expenses, but it also frees up cash.

A 30-year refinance term presents many benefits. But whether it makes sense for you to refinance into a longer or shorter term depends on your financial situation.

Refinancing into a 30-year term from a shorter term — say, a 15-year fixed-rate term — can be worthwhile if you're interested in lowering your monthly payment. It's even more favorable if you can lock in a lower interest rate and improve your financial situation in some way.

Frequently asked questions about 30-year mortgage refinance rates

• What is a 30-year fixed refinance mortgage?

  A 30-year fixed-rate mortgage is the most common type of loan. It has a set rate, which keeps your principal and interest payments stable.

  Refinancing with a 30-year loan lets you pay off and replace your existing loan with a new, longer-term loan and a different rate. There are several reasons to refinance into this type of loan, including reducing your monthly payment, lowering your mortgage rate or changing the type of loan you currently have.

• How are 30-year mortgage refinance rates set?

  To determine your mortgage rate, lenders will review your credit score, payment history, savings, income, and other aspects of your financial life. Lenders want to ensure that you are not a risky borrower, and that you are unlikely to default on your loan.

  These qualifying factors are within your control, but you won’t be able to control external factors that influence your mortgage rate, such as inflation. During periods of inflation, mortgage bond investors will raise rates to protect their return on investments, since inflation diminishes the value of a mortgage’s fixed payments over time. Rates have now topped 6 percent, their highest level since 2008, partly as a result of inflation.

  With rates on the rise, you may consider a rate lock if you find a competitive rate.

• What is the difference between 15-year and 30-year refinance rates?

  15-year refinance rates are typically lower than 30-year refinance rates. As a result, you’ll pay significantly less in interest over the life of the loan if you choose a 15-year loan. Plus you’ll repay the loan in half the time.

Learn more about 30-year mortgage refinancing

• Calculate your potential refinance savings
• How to refinance your mortgage
• How to get the best refinance rate
• Compare mortgage lenders