When you refinance a mortgage, does the 30 years start over? The short answer is yes, most of the time it does. Refinancing means taking out a brand-new loan to replace your current one, and that usually resets the clock. But this reset isn’t necessarily a bad thing.
It all depends on your goals, whether you’re looking to lower your rate, reduce monthly payments, or tap into equity. In this guide, we’ll walk through exactly what happens when you refinance, the pros and cons, and how to know if it’s the right move for you.
Quick summary
- Yes, refinancing usually restarts your mortgage term from year one
- You can choose shorter terms like 15 or 20 years instead of another 30
- Most people refinance to lower interest rates or monthly payments
- It’s not always worth it: costs, equity, and your goals all matter
What happens to your loan term when you refinance
Refinancing creates an entirely new mortgage. Even if you’ve been paying on your current loan for several years, the new loan will likely come with its own term, most commonly 30 or 15 years. So yes, refinancing your mortgage usually means starting over, unless you choose a shorter term that keeps you on track.
For example, if you’ve paid 7 years on a 30-year mortgage and refinance into another 30-year loan, you’ll now be looking at 37 total years of payments unless you pay extra each month or refinance into a shorter term.
Can you refinance into a shorter term
Yes, and many homeowners do. Refinancing into a 15- or 20-year mortgage helps reduce the amount of interest you pay over the life of the loan. Monthly payments will usually go up, but the long-term savings can be substantial.
Let’s say you owe $220,000 and refinance into a 30-year mortgage at 6.5%, your monthly principal and interest would be about $1,391. If instead you chose a 15-year loan at 6.0%, your payment would rise to about $1,854, but you’d save over $100,000 in interest over the life of the loan. It’s a trade-off worth running the numbers on.
Main reasons why people refinance their mortgage
To get a lower interest rate
Lowering your interest rate is one of the most common reasons to refinance. If rates have dropped since you first got your mortgage, refinancing could save you thousands, or even tens of thousands, over the full term of your loan.
For instance, refinancing a $250,000 loan from 7% to 5.5% could reduce your monthly payment by over $200 and cut your total interest by more than $50,000 over 30 years. The only downside would be the closing costs on the new loan, but long-term it would likely be a small speck compared to the savings you would get on the lower interest rate.
To reduce the monthly payment
If your goal is to free up monthly cash, refinancing can help by either lowering your rate or stretching the remaining balance over a longer term. This is especially helpful if you’re “house-poor” or living paycheck to paycheck and need breathing room.
Just keep in mind that extending the term may mean you’ll pay more in interest overall, even if the monthly amount is lower. Paying off the house may still be the goal for you, don’t lose sight of that.
To switch from an ARM to a fixed-rate loan
Adjustable-rate mortgages (ARMs) often start with a low rate that increases over time. Refinancing into a fixed-rate loan gives you the stability of a consistent monthly payment and protects you from future rate hikes.
This is a popular move when rates are rising or if your introductory period is ending and you want more predictability in your budget.
To tap into home equity
A cash-out refinance allows you to borrow more than your current mortgage balance and receive the difference in cash. This can be used to consolidate high-interest debt from multiple loans, fund home improvements, or cover large expenses like tuition or medical bills.
It’s important to remember that this increases your loan balance and potentially your monthly payment. The key is to make sure the money you’re pulling out is used wisely and not just adding more long-term debt.
To remove PMI
If you bought your home with less than 20% down, you’re probably paying private mortgage insurance (PMI). Once you’ve built enough equity, usually 20% or more, you may be able to refinance and remove that extra monthly cost.
But here’s where you need to be careful. If your current mortgage has a low interest rate, like 2.5% from the early 2020s, and your refinance rate would be closer to 6%, removing PMI might not make financial sense.
For example, if your PMI costs $120 per month but refinancing raises your interest cost by hundreds more, you’re likely better off sticking with your current loan and just riding out the PMI until you reach the threshold to remove it without refinancing. Or until interest rates drop lower, though we may not see them in the 2% range ever again.
When refinancing might not be the right choice
Refinancing isn’t free. Closing costs typically range from 2% to 5% of the loan amount and may include fees for the application, appraisal, title work, and more. These costs can be rolled into the loan, but they still add to your overall debt and reduce how much you save.
Refinancing also might not be worth it if you haven’t built much equity, plan to move soon, or already have a great interest rate. And if you’re restarting a 30-year term, you could end up paying far more in interest over time, even if your monthly payment drops. Always do the math before moving forward.
The bottom line
Yes, refinancing usually restarts your mortgage from year one. But it doesn’t have to be another 30 years. You can choose shorter terms, lower your rate, or eliminate PMI depending on your situation. Just weigh the costs, your equity, and how long you plan to stay in the home. The right refinance can save you thousands, but the wrong one can cost you more in the long run.