Sometimes due to bad credit or market conditions, it is not possible to get lower monthly payments on your home loan by refinancing. This is due to the fact that those with bad credit usually can not get a lower interest rate and that sometimes, market conditions push the mortgage loans interest rate up. However, you can still get lower installments by refinancing your loan with a longer repayment program.
The term extension will get you lower monthly payments because the loans capital is spread over a higher number of installments. With this method, if you could not afford your current mortgage loans monthly payments, you can obtain lower and affordable installments that you will be able to pay without having to make sacrifices.
Home Loan Repayment Programs
The home loan repayment program or schedule is the duration in time of the home loan. It determines the number of installments you will need to pay throughout the whole life of the loan. Payments can be done one a monthly basis, on a weekly basis, or biweekly too. Depending on the way payments are done and on the duration of the loan, you will obtain the resulting number of monthly payments.
For example: if a home loan has a 10 year repayment program, you will have 120 installments to repay the loan if payments are made monthly. But if payments are made biweekly, you will have 240 installments that will of course be of a lower amount than in the case of the loan payable on a monthly basis.
A mortgage loan repayment program can be as long as 30 years. However, the average mortgage loan has duration of 20 years or just a bit more. Thus, if you need to obtain lower monthly payments, it is always possible to refinance your home loan in order to extend the repayment schedule and thus, obtain a lower installment in return.
Consequences of Extending the Loan Term
The consequences of extending the loan term are varied, some of them are positive and others are negative. Thus, you will need to ponder them in order to decide whether home loan refinancing for a longer repayment program is the right option for you. Basically you will need to compare the resulting terms with your needs in order to see if the costs of refinancing are equal or lower than the benefits.
Ultimately, by refinancing for a longer repayment program, you will obtain lower and more affordable monthly payments. If you are lucky enough to refinance with a lower interest rate, you might be able to compensate the higher costs that a longer repayment schedule represents with the savings that a lower interest rate provide, or at least part of them.
This is due to the fact that when you refinance for a longer repayment program you are actually adding interests to your overall loan repayment. Since interests are based on time, a longer repayment program implies more interests and thus an overall larger debt. Even if you obtain lower monthly payments, you are actually paying more on the long run. It is just that the costs are spread over more installments.
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