As a plumber, you know the value of having the right tools for the job. The same principle applies to your home loan – sometimes you need to adjust your loan term to match your current financial situation. If you're considering refinancing, changing your loan term could be one of the most powerful moves you make.
Understanding Loan Term Changes
When you refinance, you're not just swapping lenders or accessing a lower interest rate. You can also change your loan term – the length of time you'll take to pay off your loan amount. This flexibility gives you control over your monthly cash flow and long-term financial goals.
Most home loans in Australia run for 25 to 30 years, but this doesn't mean you're locked into that timeframe forever. Whether you want to reduce loan repayments or pay off your mortgage sooner, adjusting your loan term during refinancing opens up new possibilities.
Extending Your Loan Term: More Cash Flow Today
If your plumbing business needs more working capital or you're facing temporary financial pressures, extending your loan term can provide immediate relief. Here's what extending your term typically means:
• Lower monthly repayments spread over a longer period
• More disposable income for business investments or family needs
• Potential to consolidate debts into your home loan at a lower interest rate
• Additional breathing room during seasonal work fluctuations
Keep in mind that while extending your loan term reduces monthly payments, you'll pay more interest over the life of the loan. However, this trade-off might be worthwhile if it helps stabilise your financial situation or allows you to invest in growing your business.
Shortening Your Loan Term: Pay Less Interest Overall
If your plumbing business is thriving and your income has increased, shortening your loan term could save you thousands in interest payments. Consider these advantages:
• Significant interest savings over the loan's lifetime
• Build equity in your property faster
• Become mortgage-free sooner
• Potential access to lower refinance interest rates on shorter terms
The application process for shortening your loan term usually requires demonstrating that your income can comfortably support higher repayments. Your bank statements and business financials will need to show consistent earnings.
When Your Fixed Rate Period is Ending
Many tradies initially chose fixed interest rate loans for payment certainty. When your fixed rate period ending approaches, it's an ideal time to reassess your loan term alongside your interest rate options.
You might switch from a fixed interest rate to a variable interest rate, or secure another fixed rate period with a different loan term. This transition period gives you leverage to negotiate loan options that align with your current circumstances.
Releasing Equity Through Term Changes
If you're looking at releasing equity in your property – perhaps to buy tools, a work vehicle, or even release equity to buy the next property – adjusting your loan term can impact how much equity you can access.
Shorter loan terms might limit your borrowing capacity, while longer terms could increase it. A Finance & Mortgage Broker can help you model different scenarios to find the right balance.
Working with Mortgage Brokers for Your Refinancing
Navigating loan term changes while refinancing involves comparing multiple variables: interest rates, loan features, fees, and repayment structures. Mortgage Brokers can access loan options from banks and lenders across Australia, giving you a comprehensive view of what's available.
Through a streamlined application process, brokers can:
• Conduct a home loan health check to identify opportunities
• Check eligibility for special lender policies that benefit tradies
• Compare how different loan terms affect your total costs
• Potentially access a better interest rate through their lender relationships
• Present multiple scenarios showing various term lengths and their impacts
Making the Right Choice for Your Situation
The right loan term depends on your specific circumstances. Consider these factors:
Your Business Cycle: Plumbing work can be seasonal. Longer terms provide flexibility during quieter periods, while shorter terms work well when business is consistently strong.
Life Stage: Younger tradies might prefer longer terms for affordability, while those closer to retirement might want shorter terms to eliminate debt sooner.
Investment Goals: If you're planning to expand your business or invest in additional properties, your loan term strategy should align with these objectives.
Interest Rate Environment: In some market conditions, locking in longer fixed terms makes sense, while in others, shorter variable arrangements might be more suitable.
Taking Action on Your Refinancing
Changing your loan term during refinancing isn't just about the numbers – it's about creating a mortgage structure that supports your goals as a tradie and property owner. Whether you want to reduce monthly pressure on your cash flow or accelerate your path to being mortgage-free, the right loan term can make a substantial difference to your financial future.
Call one of our team or book an appointment at a time that works for you. We'll review your current situation, explore your options across multiple lenders, and help you structure a refinanced loan that works with your business and lifestyle needs.
