Suze Orman's Key Advice On Refinancing Your Mortgage: Don't Get Another 30-Year Loan

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21-03-2025

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Refinancing a mortgage can be an effective way to lower monthly payments or secure a better interest rate, but financial expert Suze Orman cautions against one common mistake: resetting the loan term to 30 years.
On a recent episode of her "Women & Money" podcast, Orman responded to a listener's question about refinancing and explained why this approach can cost homeowners more in the long run — and how to avoid it.
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During the episode, a listener named Michelle asked Orman for advice on refinancing. Michelle explained that she and her family purchased their "forever home" in May 2023 to move into a better school district. Their new mortgage came with a 6% interest rate, a significant jump from the 2.5% rate they had on their previous home. Since their new house also cost substantially more, their mortgage payment more than doubled.
Despite the higher costs, Michelle and her family had planned ahead. They saved enough to stay afloat comfortably and hoped to refinance within one to two years when interest rates dropped. Michelle asked Orman whether refinancing at 5% or lower would be the right move — and if so, what factors should guide that decision.
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Orman acknowledged that refinancing could be a smart move but warned Michelle — and other homeowners — to avoid a common pitfall: resetting the mortgage to a new 30-year term.
She said many people make the mistake of refinancing for another 30 years. "So these four or five years that you have been paying on it – you've just lost all of that," Orman said. "So you think that you're ahead, but the truth of the matter is you're not."
Instead, Orman recommends refinancing only for the number of years remaining on your current mortgage — or fewer. For example, if you have 26 years left on your mortgage, you should refinance for a 25-year term or less. By doing so, you avoid adding extra years to your mortgage and potentially paying thousands more in interest.Orman stressed the importance of calculating whether refinancing is financially worthwhile. She outlined these key steps:
Calculate the total cost of refinancing. This includes closing costs, points (if applicable), and other fees.
Determine your potential monthly savings. Subtract your new mortgage payment from your current one.
Find your break-even point. Divide the total refinancing costs by your estimated monthly savings. This tells you how long it will take to recoup your costs.
For instance, if refinancing costs $5,000 and your new payment would save you $200 per month, it would take 25 months to break even. If you plan to stay in the home longer than that, refinancing may be a smart choice.
However, Orman cautioned that if the break-even point is five, six, or seven years — and you don't expect to live in the home that long — refinancing may not be worthwhile.
For homeowners like Michelle, Orman's advice offers a clear path: Refinancing may be a smart move if it saves you money, but don't reset your mortgage term to 30 years. By refinancing only for the number of years left on your current mortgage — or fewer — you can reduce your interest costs and stay on track to pay off your home sooner.
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This article Suze Orman's Key Advice On Refinancing Your Mortgage: Don't Get Another 30-Year Loan originally appeared on Benzinga.com