One of the most powerful outcomes of refinancing a loan is a lower interest rate. Whether your credit score has improved since you originally took out the loan or simply because average rates have dropped, if a significantly lower rate is possible, it’s worth looking into. A lower interest rate can make a big difference in how much you pay over the life of your loan.
If your current monthly payment is hard to afford, you might be able to lower it through refinancing. Most often, this is done through the combination of a long (or longer) term on a lower total loan amount. For example, if you took out a 30 year mortgage for $100,000 and paid off $20,000, that would leave you with $80,000 left to pay. If you decide to refinance with another 30 year loan, you can now spread the payments for the remaining $80,000 out over 30 years. This makes your monthly payment smaller.
That being said, it’s important to take interest into account. If you were already 10 years into your mortgage and decided to refinance for another 30-year mortgage, you’d now be paying interest for a total of 40 years. That means that while your monthly payments may be smaller, it’s possible that you’ll pay more overall than you would have without refinancing.