There are other possibilities you may want to consider. A thirty year loan at 7% has a monthly payment only $10 less each month than a twenty-five-year loan at 6.5%. At 6%, the monthly payment on a twenty-five-year loan is $20 less. If you are not struggling with making your current payment, you may want to refinance to both a lower interest rate and shorter term. The advantages are that you will save a lot of money by paying off your loan sooner, and, especially with fixed rate loans, the shorter term will usually come with a lower interest rate.
Everyone wants to tell you the cost of getting in. Few lenders tell you the cost of getting out.
Beware of the opposite as well. Say you have twenty years left on your current loan and you refinance to a thirty-year loan. Even at the lower rate, you will pay more in the long run. Again, ask yourself how long you intend to keep the loan. How much would the payment be on a new twenty-year loan with the lower interest rate?
If refinancing is done for the right reasons, regardless of which way you decide to do it, you will save money, as long as you shop around and do your calculations. Refinancing to pull money (equity) out of your home to incur more debt is not a good idea.
Example: You refinance your $100,000 loan with a $150,000 loan to get $50,000 cash. You buy a car, some furniture, and take a trip. You now have to pay back $150,000 and you have increased the risk of losing your home.
Refinancing to reduce debt is a good idea. Think long and hard before refinancing to create debt.