When considering refinancing your home loan, one of the most significant decisions you'll face is whether to change your loan term. This choice can dramatically affect your financial situation, from monthly repayments to the total interest paid over the life of your loan. For Wantirna residents exploring refinancing options, understanding loan term changes is crucial for making informed decisions.
Understanding Loan Term Changes in Refinancing
Changing your loan term during refinancing means adjusting the period over which you'll repay your home loan. You might extend from 25 years to 30 years, or reduce from 30 years to 20 years. This decision impacts your interest rate structure, loan amount calculations, and overall financial commitments.
When you change your loan term, lenders reassess your application through their standard application process. They'll review your banks statements, income documentation, and current financial situation to determine your eligibility for the new loan structure.
Reasons to Consider Changing Your Loan Term
Several circumstances might prompt you to change your loan term when refinancing:
• Reduce loan repayments: Extending your loan term typically lowers monthly payments, providing more breathing room in your budget
• Consolidate debts: A longer term can help manage multiple debts by reducing overall monthly commitments
• Accessing a lower interest rate: Sometimes, different loan terms offer more favourable interest rate options
• Releasing equity in your property: Adjusting your loan term can help release equity to buy the next property or fund other investments
• Fixed rate period ending: When your fixed rate period concludes, refinancing with a term change might secure more advantageous rates
Impact on Interest Rates and Repayments
Loan term changes directly affect your interest payments and repayment structure. With access loan options from banks and lenders across Australia, Andor Financial can help you understand these impacts:
Shorter Loan Terms:
• Higher monthly repayments
• Less total interest paid over the loan's life
• Potentially access a better interest rate from some lenders
• Build equity faster in your property
Longer Loan Terms:
• Lower monthly repayments
• More total interest paid over the loan's life
• May affect your eligibility for certain interest rate products
• Increased flexibility in monthly budgeting
Fixed vs Variable Interest Rate Considerations
When changing your loan term, you'll also choose between fixed interest rate and variable interest rate options. Each has implications for your refinancing decision:
Fixed Interest Rate Benefits:
• Predictable repayments regardless of market changes
• Protection against rate rises during the fixed period
• Easier budgeting and financial planning
Variable Interest Rate Benefits:
• Potential to benefit from rate decreases
• Often more flexible features and offset account options
• May offer lower initial rates than fixed options
The Refinancing Process for Term Changes
The streamlined application process for refinancing with term changes involves several key steps:
- Home loan health check: Assess your current loan's performance and identify improvement opportunities
- Documentation gathering: Prepare banks statements, income proof, and property valuations
- Lender comparison: Evaluate better loan options across multiple institutions
- Application submission: Complete applications with chosen lenders
- Settlement coordination: Manage the transition from your existing loan
Mortgage brokers can check eligibility for special lender policies that might not be publicly advertised, potentially securing more favourable terms for your specific situation.
Potential Costs and Considerations
Before changing your loan term through refinancing, consider these factors:
• Discharge fees: Your current lender may charge fees to close your existing loan
• Application costs: New loan establishment fees and valuation costs
• Legal expenses: Solicitor fees for loan documentation
• Ongoing costs: Annual fees, monthly account keeping charges
• Break costs: If leaving a fixed rate early, substantial penalties may apply
These costs should be weighed against the potential savings from refinance interest rates and improved loan terms.
Making the Right Decision for Your Situation
Every financial situation is unique, and what works for one Wantirna resident may not suit another. Consider your:
• Current and projected income stability
• Family circumstances and future plans
• Risk tolerance for interest rate movements
• Property goals and investment strategies
• Overall debt management objectives
A thorough loan health check can reveal whether your current loan structure serves your financial goals or if refinancing with term changes would prove beneficial.
Changing your loan term through home loan refinance represents a significant financial decision that requires careful consideration of your long-term objectives. Whether you're looking to reduce monthly commitments, access equity, or optimise your interest rate structure, professional guidance ensures you make informed choices aligned with your financial goals.
Call one of our team or book an appointment at a time that works for you to explore how loan term changes could benefit your financial situation.