Orman says the costly mistake most of those recent refinancers probably made was to automatically sign up for another 30-year mortgage. Even if they’d been paying down their existing 30-year loan for several years, this is not the right move according to Orman.
“This is so very wrong,” she writes, in her blog.
The personal finance guru says, “Sure, the new mortgage is at a lower interest rate, but you just extended your mortgage-payment on this home to 44 years!” she says when giving an example of a mortgage that had been paid for 14 years and was being refinanced for another 30 years.
When does a 30-year refinance becomes sensible?
The 30-year fixed-rate mortgage is America’s most popular home loan. So naturally, it is the go-to for homeowners who want to trade in their existing mortgages for a better deal.
It also is the most obvious option if current your mortgage is fairy new. Millions of people financed their homes at the beginning of 2020 when 30-year mortgages were averaging around 3.75%. If they had waited, they could have saved an average of $299 by refinancing at today’s low rates.
