Top Tips to Refinance and Change Your Loan Term

Understanding Loan Term Changes When You Refinance Your Mortgage

When you refinance your home loan, you're not just looking at accessing a lower interest rate or moving to a lender with improved features. One of the most powerful yet often overlooked aspects of mortgage refinancing is the ability to change your loan term. For Balmoral homeowners, understanding how adjusting your loan amount repayment period can impact your finances is crucial for making informed decisions.

Your loan term is the length of time you have to repay your home loan. Most Australian mortgages are set at 30 years, but when you refinance, you can extend or shorten this period depending on your financial situation and goals. This flexibility can be the difference between paying tens of thousands more in interest or reaching financial freedom years earlier.

Why Consider Changing Your Loan Term During Refinancing?

Many Balmoral residents come to us at LBK Lending wondering why they should bother with a loan health check or consider refinancing at all. The answer often lies in how much you could save by optimising your loan structure, including the term.

When you refinance to a shorter loan term, you'll typically:

• Pay less interest over the life of your loan
• Build equity faster in your property
• Own your home outright sooner
• Potentially access a lower interest rate from lenders who reward shorter terms

On the flip side, extending your loan term when you refinance can:

• Reduce your monthly repayments and improve cashflow
• Make your mortgage more manageable if your income has changed
• Free up funds for other investments or expenses
• Help you consolidate other debts into your mortgage

The Real Cost of Your Loan Term

Let's look at a practical example that many Balmoral homeowners face. Suppose you have $400,000 remaining on your home loan with 25 years left at a variable interest rate of 6.5%. Your monthly repayments would be approximately $2,700, and you'd pay around $410,000 in interest over the loan's life.

If you refinance and shorten your loan term to 20 years at a lower interest rate of 6.0%, your monthly repayments increase to about $2,865, but your total interest paid drops to approximately $287,000. That's a saving of $123,000 over the life of the loan.

Alternatively, if you're experiencing financial pressure and extend your term to 30 years at 6.0%, your monthly repayments drop to $2,398, improving your immediate cashflow by over $300 per month.

When Does Shortening Your Loan Term Make Sense?

Shortening your loan term during the refinance process works particularly well when:

1. Your income has increased: If you've received a promotion or your household income has grown, channelling that extra money into your mortgage can save you thousands in interest.

2. Your fixed rate period is ending: If you're coming off a fixed rate, this is an ideal time to review your entire loan structure, including the term.

3. You want to access equity sooner: Building equity faster means you can potentially access equity for investment or other property purchases down the track.

4. You're approaching retirement: Paying off your home loan before you retire can reduce financial stress during your retirement years.

5. Interest rates have dropped: When you refinance to a lower rate, maintaining similar repayments but on a shorter term can accelerate your loan repayment without impacting your budget.

When Should You Consider Extending Your Loan Term?

Extending your loan term through refinancing can be beneficial when:

• You need to reduce loan costs and improve your monthly cashflow
• You want to consolidate high-interest debts into your mortgage
• Your income has temporarily decreased
• You're investing in property and want to improve your borrowing capacity
• You prefer having more disposable income for other investments

Key Considerations Before Changing Your Loan Term

Before you start the refinance application, consider these important factors:

Your Age and Time Until Retirement: Lenders typically require loans to be repaid by age 70-75. If you're older and extend your term, you might face challenges.

Additional Repayment Features: Look for loans with a refinance offset account or refinance redraw facilities. These features let you make extra repayments when you can afford them, effectively shortening your loan term without being locked into higher minimum repayments.

Exit Costs: If you're still within a fixed interest rate period, breaking your loan early might incur significant fees. Compare these costs against potential savings.

Property Valuation: Your lender will require a current property valuation. If property values in Balmoral have increased, you might have more equity than you realise, giving you additional options.

The Refinance Process for Loan Term Changes

Changing your loan term when you refinance your home loan follows a similar refinance process to a standard refinancing application:

1. Conduct a thorough loan review of your current situation
2. Compare refinance rates and features from different lenders
3. Consider whether you want to switch to variable, switch to fixed, or split your loan
4. Submit your refinance application with your chosen lender
5. Complete the property valuation and documentation requirements
6. Settle your new loan and start benefiting from your optimised loan structure

Making the Right Choice for Your Situation

There's no one-size-fits-all answer when it comes to why refinance or what loan term to choose. Some Balmoral homeowners are focused on paying too much interest and want to reduce their total interest costs. Others need to improve their immediate financial position and prefer lower monthly repayments.

At LBK Lending, we work with clients to understand their unique circumstances and financial goals. Whether you're looking to release equity to buy the next property through a cash out refinance, consolidate debts, or simply save money refinancing to current refinance rates, we can help you understand how loan term changes fit into your overall strategy.

The key is to look at your whole financial picture. Consider:

• Your current and projected income
• Other financial commitments and goals
• Your age and retirement plans
• Whether you plan to move your mortgage to an investment loan when you upgrade
• Your comfort level with higher or lower repayments

Take Action on Your Home Loan Today

If you're stuck on a high rate or your fixed rate expiry is approaching, now is the time to explore your options. Understanding whether you should shorten or extend your loan term can help you save thousands in interest or significantly improve your cashflow.

Don't wait until you're paying unnecessary interest. A comprehensive home loan health check can reveal opportunities you didn't know existed. Whether you're looking to lock in a rate, unlock equity, or simply find a loan structure that works for your lifestyle, the right loan term can make all the difference.

Call one of our team or book an appointment at a time that works for you. We'll review your current situation, compare your options, and help you determine whether changing your loan term when you refinance makes sense for your financial future.