The short answer is yes, refinancing does reset your mortgage. When you refinance, you’re replacing your current mortgage with a new one. The new mortgage has no connection at all with your old loan. That means you are starting the loan over. But, it does not necessarily reset the payment term to the original 30 years.

Here’s a look at how refinancing resets the mortgage term and how to choose the right loan term for you.

How Refinancing Resets The Mortgage Term

When you apply for refinancing, the lender will offer you a choice of a few loan term options. Most lenders offer terms of 10, 15, and 30 years. You can choose from any of these loan terms to suit your financial circumstances.

You can opt to reset your mortgage by choosing the same as your original term but only if it suits to. It’s not mandatory. Instead, you can choose a longer or shorter term depending on your financial goals. Your choice of term can affect various aspects of the mortgage.

When you choose a shorter repayment term, your monthly payments will increase. The advantage is you’ll save thousands of dollars in accrued interest over the shorter term. You’ll also clear your mortgage so much faster. You must make sure you can afford the higher payments before choosing this option. If you miss a payment, the lender will charge you late fees and interest on the outstanding amount.

Choosing a longer repayment term will reduce your monthly payments. This is a great option if you’re looking for a way to make your monthly payments more affordable. The downside is you’ll pay more in interest over the longer term.

How To Refinance Without Extending Your Loan Term

The one limitation when refinancing is that lenders don’t offer customized loan terms. That means you can only choose from the term options that they offer. You cannot request a special term for you.

For example, original mortgage terms are generally set at 30 years. Let’s say your loan is now 7 years old. You want to get a new loan with the same end date as your current mortgage. But no lender will give you a loan for 23 years. You’ll have to choose between the longer 30-year term and the shorter 15-year term when you refinance.

The best approach is to choose the shorter term if you can afford the higher monthly payments. You’ll save a lot in interest over the shorter term. You’ll also pay off your loan quicker.

Is It Worth Refinancing A Mortgage?

Refinancing may or may not be the best option for everyone. It’s worth refinancing your mortgage if it helps you save money or free up room in your budget.

In general, refinancing a mortgage is a good idea under these circumstances:

  • Your credit has improved and qualifies you for a lower interest rate
  • Market interest rates have dropped
  • You’re financially stressed and need to lower your monthly payments
  • You want to change from a variable-rate to a fixed-rate loan
  • You want to remove a cosigner from your mortgage

In general, refinancing a mortgage is a good idea. It allows you to reset the terms so they are more suitable to your current circumstances.