What Happens When You Refinance Your Home Loan?
When you refinance your home loan, you're essentially replacing your current mortgage with a new one. While many ADF members focus on accessing a lower interest rate or switching between fixed and variable interest rates, there's another powerful tool at your disposal: changing your loan term.
Your loan term is the length of time you have to pay back your mortgage. Most home loans in Australia are set up for 30 years, but this isn't set in stone. When you refinance, you have the opportunity to adjust this timeframe, which can significantly impact both your monthly repayments and the total interest you'll pay over the life of your loan.
Why Consider Changing Your Loan Term?
For ADF members in NSW, understanding how loan term changes affect your finances is crucial. Whether you're stationed at RAAF Base Williamtown, posted at Kapooka, or anywhere else in the state, your financial goals likely evolve as your career progresses.
Changing your loan term during the refinance process can help you:
- Save thousands in interest payments over the life of your loan
- Improve your monthly cashflow by reducing regular repayment amounts
- Pay off your mortgage faster and build equity more quickly
- Align your loan structure with your current financial situation
- Prepare for major life changes like retirement or investment opportunities
Shortening Your Loan Term
Reducing your loan term means you'll pay off your mortgage faster. For example, if you still have 25 years remaining on your current mortgage, you might refinance to a 20-year or even 15-year loan term.
The benefits include:
Paying less total interest over the life of your loan is one of the most compelling reasons to shorten your term. A shorter loan period means less time for interest to accumulate, potentially saving you tens of thousands of dollars. You'll also build equity in your property more quickly, which can be valuable if you're looking to access equity for investment purposes or expanding your property portfolio.
Owning your home outright sooner provides financial freedom and security, particularly important for ADF members planning their post-service life.
The trade-offs:
Your regular repayments will increase because you're compressing the same loan amount into fewer years. This means less flexibility in your monthly budget, which might not suit everyone's circumstances.
Lengthening Your Loan Term
Extending your loan term works in the opposite direction. If you have 20 years left on your mortgage, you might refinance to a new 30-year term, giving you more breathing room with your repayments.
The benefits include:
Lower monthly repayments can significantly improve your cashflow, freeing up funds for other priorities like savings, investments, or managing unexpected expenses. This can be particularly valuable for ADF families managing the costs associated with relocations or supporting education expenses.
Increased flexibility in your budget allows you to redirect money toward other financial goals, whether that's buying your first investment property or building an emergency fund.
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The trade-offs:
You'll pay more total interest over the life of the loan because you're borrowing the money for a longer period. Your equity builds more slowly, and you'll be in debt for additional years.
Finding the Right Balance
The decision to change your loan term during a home loan refinance isn't just about numbers - it's about aligning your mortgage with your lifestyle and goals.
Consider your current age and career stage. If you're early in your ADF career, you might have decades to pay off a mortgage and could benefit from lower repayments now. However, if you're approaching retirement, a shorter loan term might help you become debt-free before you finish service.
Your income stability and growth prospects matter too. ADF members often enjoy reliable income, which can support higher repayments if you choose to shorten your term. However, if you're planning a family or anticipating increased expenses, maintaining flexibility through a longer term might make more sense.
Combining Loan Term Changes with Other Refinancing Benefits
When you move your mortgage to a new lender, you're not limited to just changing the loan term. You can simultaneously:
- Lock in a lower rate if you're coming off a fixed rate period
- Switch to a variable interest rate for more flexibility with additional repayments
- Access a refinance offset account to reduce the interest you pay
- Release equity to buy the next property or invest
- Consolidate other debts into your mortgage for simplified repayments
Many ADF members find that home loan refinancing becomes especially relevant when their fixed rate period is ending. This is an ideal time to review your loan amount, assess whether you're paying too much interest, and potentially access better features that weren't available when you first borrowed.
When to Consider Refinancing and Changing Your Loan Term
Several situations might prompt you to review your mortgage and consider a loan review:
- Your financial situation has improved: Perhaps you've received promotions or your partner has returned to work, allowing you to afford higher repayments
- You need to reduce monthly expenses: Maybe you're planning parental leave or have other financial priorities
- Your fixed rate is expiring: This presents a natural opportunity to reassess your entire loan structure
- You're stuck on a high rate: Refinancing to access better interest rates while adjusting your term can maximise your savings
- Life stage changes: Approaching retirement, starting a family, or planning investments all warrant reviewing your loan structure
The Refinance Application Process
The refinance process for ADF members often involves advantages like LMI waivers that can make changing loan terms even more attractive. A property valuation will be required to determine your current equity position.
During your refinance application, you'll work with your broker to determine the optimal loan term based on your goals. They can run scenarios showing how different loan terms affect your repayments and total interest costs, helping you make an informed decision.
Want to see if changing your loan term could work for you? A loan health check can reveal opportunities to save money refinancing while restructuring your mortgage to suit your current circumstances.
Whether you're looking to pay off your home faster, improve your monthly cashflow, or prepare for your next financial goal, adjusting your loan term during the mortgage refinancing process gives you powerful options to shape your financial future.
Call one of our team or book an appointment at a time that works for you to discuss how refinancing your loan term could benefit your situation.
