Do You Know When to Change Your Refinance Loan Term?

Understanding Refinance Loan Term Changes

As a dentist, your financial circumstances evolve throughout your career. Your mortgage should adapt with you. When you refinance home loan arrangements, one of the most significant decisions you'll make involves adjusting your loan term. This choice can substantially impact your monthly cashflow, total interest payments, and when you'll own your property outright.

Many dental professionals overlook loan term adjustments when they refinance mortgage products, focusing solely on accessing a lower interest rate. However, changing your loan term during the refinance process offers strategic advantages that align with different life stages and financial goals.

Why Consider Changing Your Loan Term When You Refinance?

When reviewing your current home loan, you might find that your original 30-year mortgage no longer suits your circumstances. Perhaps your practice has grown, your income has increased, or you're approaching retirement and want to reduce loan costs over time.

Changing your loan term during mortgage refinancing allows you to:

• Reduce total interest payments by shortening the loan period
• Improve cashflow by extending the loan term and lowering monthly repayments
• Align your loan with retirement plans
• Match repayments to changes in household income
• Release equity in your property while managing repayment obligations

Shortening Your Loan Term: The Faster Path to Ownership

If your dental practice is performing well and you can afford higher monthly repayments, reducing your loan term can save thousands in interest charges. Switching from a 30-year to a 20-year or 15-year term means you'll pay off your mortgage sooner and potentially access a better interest rate, as lenders often reward shorter loan terms.

For example, on a loan amount of $600,000 at a variable interest rate of 6.00% per annum:

• A 30-year term costs approximately $3,597 monthly, with total interest of around $695,000
• A 20-year term costs approximately $4,298 monthly, with total interest of around $431,000
• A 15-year term costs approximately $5,063 monthly, with total interest of around $311,000

The savings from a shorter loan term can be substantial, though you need to ensure the higher repayments won't compromise your financial flexibility.

Extending Your Loan Term: Prioritising Cashflow

Conversely, extending your loan term during a home loan refinance can reduce your monthly repayments, freeing up capital for other priorities. This strategy suits dental professionals who:

• Are establishing a new practice and need to manage cashflow carefully
• Want to access equity for investment purposes
• Are managing multiple financial commitments simultaneously
• Prefer to invest surplus funds elsewhere rather than accelerating mortgage repayments

While extending your term means paying more interest over the life of the loan, the improved monthly cashflow can enable strategic financial moves, such as building your investment property portfolio or upgrading practice equipment.

Strategic Considerations for Dental Professionals

Your profession offers unique advantages when refinancing. Many lenders recognise the stable income potential of dental careers and may offer favourable terms. When conducting a home loan health check, consider how your loan term aligns with:

Career stage: Early-career dentists might prefer longer terms initially, then refinance to shorter terms as income grows.

Practice ownership: If you own your practice, coordinate your business loan obligations with your mortgage strategy.

Investment goals: Dentists looking to access equity for investment need to balance investment property financing with owner-occupied loan structures.

Retirement timeline: Those within 10-15 years of retirement should consider accelerating repayments to eliminate debt before reducing working hours.

The Refinance Application Process for Term Changes

When you submit a refinance application to adjust your loan term, lenders will assess:

• Your current income and employment stability
• Your ability to service the new repayment amount
• Your credit history and existing financial commitments
• A property valuation to determine current equity

Self-employed dentists and practice owners may need to provide additional documentation, including financial statements and tax returns. Working with a specialist mortgage broker who understands dental professionals streamlines this process.

Combining Term Changes with Other Refinancing Benefits

Adjusting your loan term doesn't mean sacrificing other refinancing advantages. You can simultaneously:

• Switch to variable or switch to fixed interest rates based on market conditions
• Add features like a refinance offset account or refinance redraw facility
• Consolidate into mortgage arrangements by combining investment and owner-occupied loans
• Unlock equity for renovations, investment, or other purposes

If your fixed rate period ending soon, this presents an ideal opportunity to reassess your entire loan structure, including the term.

When to Refinance and Adjust Your Loan Term

Timing matters when you compare refinance rates and current refinance rates across lenders. Consider refinancing when:

• Your circumstances have changed significantly since taking out your original loan
• You're coming off fixed rate arrangements and facing substantially higher repayments
• You've identified that you're paying too much interest compared to available products
• You want to move mortgage arrangements to access superior loan features
• Better rate available products emerge that justify the refinance process

Many dentists discover they're stuck on high rate products simply because they haven't reviewed their loan recently. A loan review every 2-3 years ensures your mortgage continues serving your financial objectives.

The Long-Term Impact of Your Decision

Changing your loan term during refinancing creates ripple effects throughout your financial life. Shorter terms build equity faster, reducing your loan-to-value ratio and potentially eliminating lender's mortgage insurance on future borrowing. Longer terms preserve cashflow for investment opportunities that might generate returns exceeding your mortgage interest rate.

For dental professionals building wealth through property, the ability to release equity to buy the next property becomes more accessible when you've structured your existing loans appropriately. Strategic term management across multiple properties can optimise your overall portfolio performance.

Your mortgage represents one of your largest financial commitments. Ensuring it's structured correctly for your current situation and future goals shouldn't be overlooked. Whether you're looking to save money refinancing through term reduction or seeking to improve cashflow through term extension, understanding your options empowers informed decision-making.

Call one of our team or book an appointment at a time that works for you to discuss how adjusting your loan term during refinancing could align with your financial objectives and career trajectory.