When considering refinancing your home loan, one of the most significant decisions you'll face involves your loan term. As a Finance & Mortgage Broker, Blue Lion Lending helps Hawthorn clients understand how adjusting loan terms during refinancing can dramatically impact their financial situation and long-term goals.
What Does Changing Your Loan Term Mean?
When you change your loan term during refinancing, you're essentially altering the length of time over which you'll repay your loan amount. This decision affects your monthly repayments, total interest paid, and overall financial strategy. Most Australian lenders offer loan terms ranging from 10 to 30 years, giving borrowers flexibility to align their mortgage with their financial objectives.
Extending Your Loan Term: Reducing Monthly Pressure
Extending your loan term can significantly reduce loan repayments, providing immediate relief to your monthly budget. For instance, extending a 20-year loan to 25 years will lower your monthly obligations, freeing up cash flow for other financial priorities.
Benefits of extending your loan term include:
• Lower monthly repayments
• Increased cash flow for other investments
• Ability to consolidate debts into your mortgage
• Opportunity to release equity to buy the next property
However, extending your loan term means paying more interest over the life of the loan, even when accessing a lower interest rate through refinancing.
Shortening Your Loan Term: Accelerating Wealth Building
Reducing your loan term accelerates your path to home ownership and can result in substantial interest savings. While this approach increases monthly repayments, it builds equity faster and reduces total borrowing costs.
Advantages of shortening your loan term:
• Significant interest savings over the loan's life
• Faster equity building in your property
• Earlier loan completion
• Reduced exposure to interest rate fluctuations
This strategy works particularly well when your fixed rate period ending coincides with improved financial circumstances or when refinance interest rates are favourable.
Strategic Considerations for Hawthorn Property Owners
Hawthorn's property market dynamics make loan term decisions particularly important. When releasing equity in your property for investment purposes or home improvements, your chosen loan term affects how much equity you can access while maintaining manageable repayments.
Consider these factors when determining your ideal loan term:
- Current financial capacity: Assess your ability to handle higher repayments if shortening your term
- Future income expectations: Consider career progression and potential income changes
- Investment goals: Determine whether you're planning to release equity to buy the next property
- Interest rate environment: Evaluate whether variable interest rate or fixed interest rate options align with your term choice
The Refinancing Process: Making Informed Decisions
The application process for refinancing with loan term changes involves comprehensive assessment of your financial situation. Lenders will review your bank statements, income documentation, and current loan performance to determine suitable loan options.
As your Finance & Mortgage Broker, Blue Lion Lending can access loan options from banks and lenders across Australia, ensuring you receive comprehensive comparisons of available terms and rates. This approach allows you to check eligibility for special lender policies that might not be available through direct lender applications.
Interest Rate Considerations
Your chosen loan term can influence the interest rate offered by lenders. Generally, shorter loan terms may qualify for slightly lower rates, while longer terms might carry marginally higher rates. The streamlined application process through a mortgage broker helps identify lenders offering the most favourable combinations of terms and rates for your specific circumstances.
Making the Right Choice for Your Situation
The decision to change your loan term during refinancing should align with your broader financial strategy. Whether you're looking to consolidate debts, access funds for investment, or simply optimise your monthly cash flow, the right loan term can significantly impact your financial outcomes.
Consider consulting with experienced professionals who understand the local Hawthorn market and can provide personalised advice based on your unique circumstances. The right guidance ensures your refinancing decision supports both immediate needs and long-term financial objectives.
Refinancing with loan term changes offers powerful opportunities to realign your mortgage with your current financial goals. Whether you're seeking to reduce monthly obligations or accelerate your journey to debt freedom, understanding these options empowers you to make informed decisions about your property investment.
Call one of our team or book an appointment at a time that works for you to discuss how loan term changes during refinancing could benefit your specific situation.