Refinancing and Changing Your Loan Term: What to Know

When you're thinking about refinancing your home loan, one of the most powerful changes you can make is adjusting your loan term. Many ADF members focus solely on the interest rate when they refinance, but changing the length of your loan can have just as significant an impact on your finances.

Whether you're coming off a fixed rate period, looking to access equity, or simply want to save money refinancing, understanding how loan term changes work is crucial for making informed decisions about your mortgage.

What Does Changing Your Loan Term Mean?

Your loan term is simply the length of time you have to pay back your home loan. Most Australian mortgages have a standard 30-year term, but this isn't set in stone. When you refinance your mortgage, you have the opportunity to adjust this term - either shortening it or extending it based on your current financial situation and goals.

For current and former ADF members, your circumstances might have changed significantly since you first took out your mortgage. Perhaps you've received a promotion, your family situation has evolved, or you're preparing for transition to civilian life. These life changes often make it worth reconsidering your loan term during the refinance process.

Shortening Your Loan Term

Reducing your loan term - say from 30 years to 20 or 15 years - can lead to substantial savings over the life of your loan. Here's what happens when you shorten your term:

• Your monthly repayments will increase
• You'll pay significantly less interest over the loan's lifetime
• You'll own your home outright sooner
• You'll build equity faster

Let's look at a practical example. If you have a $500,000 loan amount at a 6% variable interest rate over 30 years, you'll pay approximately $579,000 in interest. Reduce that same loan to a 20-year term, and you'll pay around $358,000 in interest - potentially saving over $200,000, even though your monthly repayments increase by about $800.

This strategy works particularly well for ADF members who've had consistent pay increases or are confident about their income stability. It's also worth considering if you're looking to be mortgage-free before retirement.

Extending Your Loan Term

On the other hand, extending your loan term can provide valuable breathing room in your budget. While you'll pay more interest over time, the immediate benefits include:

• Lower monthly repayments
• Improved cashflow for other financial priorities
• Reduced payment stress during challenging periods
• More flexibility in your monthly budget

This approach makes sense if you're planning to expand your property portfolio and need to free up cashflow for a deposit on an investment property. It's also helpful during deployments or postings when you might have additional expenses or want to maintain rental properties while serving overseas.

Some ADF members choose to extend their loan term while making additional repayments when they can. If your refinanced loan includes a redraw facility or offset account, you can enjoy the security of lower required repayments while still paying down your mortgage faster when your budget allows.

Refinancing When Your Fixed Rate Period is Ending

If you're coming off a fixed rate and your loan is reverting to a higher variable interest rate, this is an ideal time to reassess your loan term. Many ADF members who took out fixed rate loans several years ago are now stuck on high rates as their fixed rate expiry approaches.

During your home loan refinance application, you can simultaneously:

• Switch to a lower interest rate (either fixed or variable)
• Adjust your loan term to suit your current circumstances
• Access equity if needed
• Consolidate other debts into your mortgage

The refinance process gives you the perfect opportunity to conduct a comprehensive loan health check and ensure your mortgage aligns with your current life stage and financial goals.

Key Considerations for ADF Members

As a defence force member, you have unique circumstances that might influence your decision about loan term changes:

Deployment and Postings: If you're frequently deployed or posted, having lower repayments through an extended term might provide more financial flexibility, especially if you're maintaining properties in multiple locations.

Defence Home Ownership Assistance Scheme: Consider how changing your loan term might interact with any DHOAS benefits you're receiving.

Transition Planning: If you're approaching the end of your service, you might want to accelerate your repayments by shortening your term while you have ADF income, or extend it to reduce financial pressure during your transition period.

Investment Goals: Many ADF members look to release equity to buy their next property or start investing. Extending your owner-occupied loan term can improve cashflow and serviceability for investment loan applications.

Calculating the Right Term for Your Situation

Before you commit to a loan term change during your refinance, work through these questions:

1. What are your current monthly repayments, and how much can you comfortably afford?
2. How long until you plan to retire or transition from the ADF?
3. Do you have other financial goals that require cashflow (investment properties, education expenses, etc.)?
4. How much total interest will you pay under different term scenarios?
5. What's your tolerance for higher repayments versus long-term interest costs?

A property valuation and thorough loan review will help you understand exactly where you stand and what options are available. Current refinance rates vary significantly between lenders, and the right loan term for you depends on much more than just the interest rate.

Making Your Decision

Changing your loan term isn't an all-or-nothing decision. Some ADF members refinance to a longer term for security but then make extra repayments to reduce the loan faster. Others might refinance to a shorter term but ensure their loan has a redraw facility for emergencies.

The key is matching your loan structure to your lifestyle, income, and goals. What worked when you were a junior member might not suit you as a senior NCO or officer. What made sense when you were single might need adjustment now that you have a family.

If you're considering refinancing your home loan and want to explore how changing your loan term could benefit your situation, it's worth having a conversation with mortgage professionals who understand the unique circumstances of ADF life. We can compare refinance rates, assess different term options, and help you work out which approach could save you thousands while supporting your broader financial objectives.

Call one of our team or book an appointment at a time that works for you. Whether you're posted domestically, deployed overseas, or working irregular hours, we'll find a time to discuss your home loan refinancing options and help you determine if changing your loan term makes sense for your situation.