As an ACT Government employee, you have unique advantages when it comes to mortgage options. If you're considering refinancing, one aspect that deserves attention is whether you should change your loan term. This decision can significantly impact your financial situation, monthly repayments, and long-term wealth building strategy.
Understanding Loan Term Changes During Refinancing
When you refinance, you're essentially replacing your existing home loan with a new one. This presents an opportunity to reassess not just your interest rate, but also your loan term. You might currently have a 30-year loan with 22 years remaining, but refinancing allows you to:
• Extend the term back to 30 years to reduce loan repayments
• Shorten the term to 15 or 20 years to pay off your mortgage sooner
• Keep the same remaining term if you're satisfied with your current repayment schedule
Finance & mortgage brokers can access loan options from banks and lenders across Australia, giving you a comprehensive view of what's available for your specific circumstances.
When Extending Your Loan Term Makes Sense
Extending your loan term during refinancing can be beneficial if you're looking to reduce loan repayments. This strategy might suit you if:
• Your household expenses have increased
• You want more cash flow for investments or other financial goals
• You're planning to consolidate debts into your mortgage
• Your fixed rate period ending has resulted in higher repayments
For example, if you currently pay $2,800 monthly on a loan with 20 years remaining, extending back to a 30-year term might reduce your repayments to around $2,400 monthly (depending on the interest rate). This extra $400 monthly can provide breathing room in your budget.
The Case for Shortening Your Loan Term
Conversely, shortening your loan term means higher monthly repayments but significant long-term savings. This approach works well when:
• You've received salary increases or bonuses
• Your living expenses have decreased
• You want to own your home outright sooner
• You're accessing a lower interest rate that offsets the shorter term impact
Reducing a 25-year remaining term to 20 years might increase your monthly repayments by $300-400, but you could save tens of thousands in interest over the loan's life.
Special Considerations for ACT Government Employees
As a public service employee, you have access to certain lender policies that aren't available to everyone. Some banks offer:
• Reduced interest rates for government employees
• More flexible lending criteria
• Waived fees during the application process
• Better loan options for those with stable government employment
When you check eligibility for special lender policies, you might find that these benefits make loan term adjustments more affordable than you initially thought.
Releasing Equity Through Refinancing
Changing your loan term during refinancing can also help with releasing equity in your property. If your home has increased in value, you might:
• Access additional funds while extending the loan term to keep repayments manageable
• Use equity to consolidate debts at a lower interest rate
• Release equity to buy the next property for investment or family needs
The key is finding the right balance between loan amount, loan term, and your financial goals.
Fixed Rate vs Variable Interest Rate Considerations
Your choice between variable interest rate and fixed interest rate options can influence your loan term decision:
Variable Interest Rate:
• Offers flexibility if rates decrease
• Monthly repayments can fluctuate
• May suit those who can handle repayment variations
Fixed Interest Rate:
• Provides certainty for budgeting
• Protects against rate increases during the fixed period
• Can help you plan around a specific loan term more confidently
Making the Right Choice for Your Situation
When considering loan term changes during refinancing, evaluate:
- Your current and projected income stability
- Other financial goals and commitments
- Risk tolerance regarding repayment fluctuations
- Plans for property upgrades or additional investments
- Timeline for retirement or major life changes
Refinance interest rates vary significantly between lenders, and the right loan term depends on securing favourable rates that align with your financial strategy.
The Application Process
The streamlined application process for refinancing typically requires:
• Recent bank statements (usually 3-6 months)
• Proof of income and employment
• Property valuation
• Details of existing debts and expenses
• Identification documents
Having these documents ready can help ensure your application progresses smoothly, regardless of whether you're extending or shortening your loan term.
Refinancing with a loan term change isn't just about reducing costs – it's about aligning your mortgage with your current financial situation and future goals. As an ACT Government employee, you're in a strong position to access quality loan options that can support your financial wellbeing.
Ready to explore your refinancing options? Call one of our team or book an appointment at a time that works for you. We'll help you understand how loan term changes could benefit your specific situation and access the most suitable loan options available.
