How to Change Your Loan Term When Refinancing

Understanding Loan Term Changes in Refinancing

When you're considering refinancing your home loan, one of the most powerful tools at your disposal is the ability to change your loan term. This adjustment can significantly impact your financial situation, affecting everything from your monthly repayments to the total amount of interest you'll pay over the life of your loan.

A loan term refers to the period over which you'll repay your mortgage. In Australia, standard home loan terms typically range from 25 to 30 years, though some lenders offer terms as short as five years or as long as 40 years. When you refinance, you have the opportunity to adjust this timeframe to match your current financial goals and circumstances.

Why Brisbane Homeowners Consider Changing Loan Terms

There are several compelling reasons why you might want to change your loan term during refinancing:

• Reduce loan repayments: Extending your loan term spreads your loan amount over more years, which can lower your monthly repayments and improve your cash flow
• Pay off your mortgage sooner: Shortening your loan term increases monthly repayments but reduces the total interest paid and helps you own your home outright faster
• Consolidate debts: A longer loan term can free up monthly income to help manage other financial commitments
• Align with life changes: Major life events such as career changes, retirement planning, or family expansion may require different repayment structures

How Loan Term Changes Affect Your Interest Rate and Repayments

The relationship between your loan term, interest rate, and repayments is crucial to understand. When you extend your loan term, your monthly repayments decrease, but you'll typically pay more interest over the life of the loan. Conversely, shortening your loan term increases monthly repayments but can save you thousands in interest charges.

For example, on a $500,000 loan amount with a variable interest rate of 6.5% per annum:
• 25-year term: Monthly repayments of approximately $3,370, total interest of $511,000
• 30-year term: Monthly repayments of approximately $3,160, total interest of $637,600

This demonstrates how a five-year difference in loan terms can impact both your monthly budget and long-term financial position.

The Refinancing Application Process for Term Changes

Changing your loan term through refinancing follows a structured application process. You'll need to provide banks statements, proof of income, and property valuations to demonstrate your capacity to service the new loan structure. Lenders will assess whether your current financial situation supports the proposed changes.

The process typically involves:

1. Financial assessment: Review your current financial situation and determine your refinancing goals
2. Market research: Access loan options from banks and lenders across Australia to find suitable products
3. Documentation: Prepare required paperwork including banks statements, payslips, and asset information
4. Application submission: Submit your application with your chosen lender
5. Property valuation: Complete any required property assessments
6. Settlement: Finalise the new loan terms and complete the refinancing process

Additional Benefits of Refinancing Beyond Term Changes

While changing your loan term is a primary consideration, refinancing offers other valuable opportunities:

Accessing a lower interest rate: Market conditions may have improved since your original loan, potentially providing access to more favourable rates

Releasing equity in your property: Property value increases may allow you to release equity to buy the next property or fund major purchases

Switching rate types: You might move from a variable interest rate to a fixed interest rate, or vice versa, depending on your risk tolerance and market outlook

Taking advantage of policy changes: Check eligibility for special lender policies that weren't available when you first obtained your home loan

When Your Fixed Rate Period is Ending

If your fixed rate period ending is approaching, this presents an ideal opportunity to reassess your loan term alongside your interest rate options. Many Brisbane homeowners use this transition period to restructure their entire loan arrangement, potentially accessing refinance interest rates that provide ongoing savings.

Professional Guidance for Brisbane Homeowners

Navigating loan term changes requires careful analysis of your individual circumstances. A comprehensive home loan health check can reveal whether adjusting your loan term aligns with your financial objectives. Professional mortgage brokers can access loan options from banks and lenders across Australia, ensuring you have visibility of all available products before making your decision.

The refinancing landscape includes numerous variables beyond just loan terms and interest rates. Factors such as fees, features, offset accounts, and redraw facilities all influence the overall value of your mortgage package.

Changing your loan term during refinancing represents a significant financial decision that can reshape your monthly budget and long-term wealth building strategy. Whether you're looking to reduce loan repayments, consolidate debts, or accelerate your path to mortgage freedom, understanding how loan term adjustments work within the broader refinancing context empowers you to make informed choices about your financial future.

Call one of our team or book an appointment at a time that works for you to discuss how refinancing and loan term changes could benefit your specific situation.