Why Should You Consider Refinancing Your Loan Term?

When it comes to mortgage refinancing, most homeowners focus on accessing a lower interest rate. While this is certainly important, another powerful strategy often gets overlooked: changing your loan term. Whether you're looking to reduce loan costs, improve cashflow, or pay off your mortgage sooner, adjusting the length of your home loan through a refinance can make a significant financial difference.

At Wagstaff Finance, we help clients in Eight Mile Plains and surrounding areas understand all their refinancing options, including how loan term changes can align with their evolving financial circumstances.

Understanding Loan Term Changes

Your loan term is the length of time you have to repay your mortgage. In Australia, the standard home loan term is 30 years, but terms can range from as short as 5 years to as long as 30 years or more. When you refinance your home loan, you have the opportunity to adjust this timeframe up or down, depending on your goals.

Shorter loan terms typically mean:

• Higher monthly repayments
• Less interest paid over the life of the loan
• Faster equity building
• Earlier debt freedom

Longer loan terms generally offer:

• Lower monthly repayments
• Improved cashflow in the short term
• More interest paid over the loan's life
• Extended time to debt freedom

Why Refinance to Shorten Your Loan Term?

Many homeowners choose to refinance to a shorter loan term when their financial situation improves. Perhaps you've received a salary increase, paid off other debts, or simply want to become mortgage-free sooner. By refinancing to a shorter term, you can save thousands in interest payments over the life of your loan.

For example, if you have 25 years remaining on your mortgage and refinance to a 20-year term, you'll pay off your home five years earlier. Even if the interest rate stays the same, the reduced timeframe means substantially less interest accumulates. When combined with the opportunity to potentially access a better interest rate through refinancing, the savings can be considerable.

When to Consider Extending Your Loan Term

While shortening your loan term offers long-term savings, extending it can provide valuable short-term relief. This approach might suit you if:

• You're experiencing temporary financial pressure
• You want to reduce your monthly repayment obligations
• You're planning for a career change or starting a family
• You need to improve cashflow to manage other expenses
• You want to consolidate into mortgage other debts with higher interest rates

Extending your loan term through a refinance application can reduce your monthly repayments substantially, freeing up cash for other priorities. However, it's important to understand that while your monthly payments decrease, you'll typically pay more interest over the extended period unless you make additional repayments when possible.

Combining Loan Term Changes with Other Refinancing Benefits

When you undertake a loan health check, you might discover that changing your loan term isn't the only benefit available through refinancing. You can often combine a term adjustment with:

• Accessing a lower interest rate to reduce loan costs further
• Switching between variable interest rate and fixed interest rate products
• Adding features like a refinance offset account or refinance redraw facility
• Releasing equity in your property for renovations or investments
• Consolidating other debts into your mortgage at a lower rate

For those coming off fixed rate or experiencing fixed rate expiry, this presents an ideal time to review both your interest rate and loan term. Many borrowers find themselves stuck on high rate products after their fixed rate period ending, making refinancing particularly valuable.

The Refinance Process for Loan Term Changes

Changing your loan term through refinancing follows the same refinance process as any other mortgage refinancing:

1. Loan review: Assess your current mortgage and financial goals
2. Property valuation: Determine your property's current value and available equity
3. Compare refinance rates: Review current refinance rates and loan features
4. Refinance application: Submit your application with required documentation
5. Settlement: Complete the switch to your new loan structure

The entire process typically takes 4-6 weeks, depending on your lender and circumstances. Working with an experienced mortgage broker in Eight Mile Plains can help ensure your application proceeds smoothly.

Financial Considerations

Before deciding whether to shorten or lengthen your loan term, consider:

• Your current repayment capacity: Can you comfortably afford higher repayments if shortening your term?
• Long-term financial goals: Do you prioritise paying less interest or maintaining cashflow flexibility?
• Life stage: Are you approaching retirement or planning major life changes?
• Other financial commitments: Do you have other debts or upcoming expenses to manage?
• Interest rate environment: Are current refinance interest rates favourable for your situation?

If you're also considering investment loans or looking to access equity for investment purposes, your loan term strategy becomes even more important. The right loan amount and term combination can position you well for building wealth through property.

Making the Right Decision for Your Circumstances

There's no one-size-fits-all answer to the question of loan term length. Your ideal term depends on your unique financial situation, goals, and priorities. Some homeowners even choose to refinance multiple times throughout their mortgage journey, adjusting their loan term as their circumstances change.

What matters most is understanding your options and making an informed decision based on comprehensive information. When you know why refinance opportunities exist and when to refinance based on your situation, you can make choices that serve your long-term financial wellbeing.

If you're paying too much interest on your current mortgage or simply want to explore whether a loan term change could benefit you, now is the time to investigate your options. The refinancing market offers numerous opportunities to optimise your home loan structure, and adjusting your loan term could unlock significant value.

Take Action on Your Home Loan

Whether you want to save money refinancing by shortening your term, improve your monthly cashflow by extending it, or explore other refinancing options, Wagstaff Finance is here to help. Our team specialises in helping local homeowners understand their options and find solutions tailored to their needs.

Call one of our team or book an appointment at a time that works for you. We'll conduct a comprehensive home loan health check and show you exactly how a loan term change could impact your financial future.