Changing your loan term when you refinance can shift your monthly repayments by hundreds of dollars and alter how much interest you pay over the life of your loan.
Most aged care pharmacists refinance to access a lower rate, but the loan term you choose during that process determines whether you prioritise immediate cashflow or long-term savings. A shorter term means higher repayments but less interest paid overall. A longer term reduces your monthly commitment but extends the time you're paying interest. Both approaches have a place depending on where you are in your career and what you're trying to achieve.
Why loan term matters when you refinance
Your loan term directly controls two things: the size of your regular repayment and the total interest you'll pay. When you refinance, most lenders will allow you to select a new term rather than simply continuing with the remaining years on your existing loan. This gives you the opportunity to restructure your debt in a way that suits your current income and goals.
Consider an aged care pharmacist who refinances a remaining balance of $400,000. If they choose a 30-year term, their repayments will be lower than if they select a 20-year term, but they'll pay significantly more in interest over the life of the loan. The difference in total interest can be substantial, even if the interest rate is identical.
Shortening your loan term to reduce interest costs
Reducing your loan term when you refinance your home loan means you'll pay off your mortgage sooner and pay less interest overall. The repayments will be higher, but if your income has increased since you first took out your loan, you may be able to absorb that comfortably.
In a scenario like this, an aged care pharmacist with $350,000 remaining on their mortgage and 25 years left decides to refinance to a 20-year term at a lower rate. Their monthly repayment increases, but they shave five years off their loan and reduce the total interest paid by tens of thousands of dollars. This approach works well if you've had a pay rise, reduced other debts, or simply want to own your home outright sooner.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Pharmacist Home Loans today.
Extending your loan term to improve cashflow
Extending your loan term when you refinance reduces your repayments, which can be useful if you're managing other financial commitments or planning to invest elsewhere. This strategy is common among aged care pharmacists who want to access equity for an investment property or who need more breathing room in their budget after a career change or relocation.
The trade-off is that you'll pay more interest over the life of the loan, and it will take longer to own your home outright. But if the lower repayment allows you to build savings, invest, or manage irregular income, the flexibility can be worth it.
Resetting to a fresh 30-year term vs continuing your remaining term
When you refinance, some lenders will default to a new 30-year term unless you specify otherwise. This can catch people off guard if they've already been paying off their loan for several years. Resetting to 30 years means lower repayments, but you're starting the clock again, which adds years to your loan and increases total interest.
If you've been paying your mortgage for five years and refinance to a new 30-year term, you'll end up with a 35-year total loan period. If you want to stay on your original timeline, you'll need to either select a 25-year term when you refinance or make additional repayments to offset the extension. A loan health check before refinancing can help you understand how your current term compares to what's available.
Matching your loan term to your career stage
Your loan term should reflect your income trajectory and how long you plan to work. An aged care pharmacist in their early 30s may be comfortable with a longer term because they have decades of earning ahead. Someone closer to retirement may want to shorten their term to ensure the loan is cleared before their income drops.
If you're planning to work part-time or transition into consulting later in your career, refinancing to a shorter term now while your income is stable can reduce the financial pressure later. Alternatively, if you're planning to expand your property portfolio, extending your term on your home loan can free up cashflow to service an investment loan.
How offset accounts and redraw work with different loan terms
Your loan term doesn't change how offset accounts or redraw facilities function, but it does affect how much impact they have. A shorter loan term means higher repayments and potentially less surplus cash to park in an offset account. A longer term gives you lower repayments and more flexibility to build up offset funds, which can reduce the interest you're charged without locking you into higher repayments.
If you extend your term when you refinance but use an offset account to hold extra funds, you maintain the flexibility of lower repayments while still reducing your interest. This can be a practical middle ground if you want the option to access cash but don't want to commit to higher repayments permanently.
What happens when your fixed rate period ends
If you're coming off a fixed rate, refinancing gives you the chance to review your loan term at the same time. Many aged care pharmacists fixed their rates a few years ago and are now facing higher variable rates as their fixed period ends. Refinancing to a lower variable or fixed rate is one part of the equation, but adjusting your loan term at the same time can help you manage the repayment change.
If your repayments are set to jump after your fixed period ends, extending your loan term when you refinance can soften that increase. If you want to keep your repayment similar to what it was during your fixed period, you may be able to shorten your term and still stay within budget, depending on the rate you secure.
Refinancing gives aged care pharmacists the chance to reset more than just their interest rate. The loan term you choose shapes your repayments, your total interest cost, and how long you'll be paying off your home. Whether you're looking to clear your mortgage sooner or improve your monthly cashflow, the term you select should reflect where you are now and where you're heading. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I change my loan term when I refinance?
Yes, most lenders allow you to choose a new loan term when you refinance rather than continuing with the remaining term on your current loan. This gives you the opportunity to shorten or extend your loan period depending on your financial goals.
What happens if I extend my loan term when refinancing?
Extending your loan term will reduce your regular repayments, which can improve cashflow. However, you'll pay more interest over the life of the loan and it will take longer to own your home outright.
How does shortening my loan term affect my repayments?
Shortening your loan term increases your regular repayments but reduces the total interest you pay and allows you to own your home sooner. This works well if your income has increased since you first took out your loan.
Will my loan term reset to 30 years when I refinance?
Some lenders default to a new 30-year term when you refinance unless you specify a different term. If you want to maintain your original timeline, you'll need to select a term that matches your remaining years.
How do I choose the right loan term when refinancing?
Your loan term should reflect your current income, career stage, and financial goals. A shorter term suits those wanting to reduce interest and own their home sooner, while a longer term helps those needing lower repayments or planning to invest elsewhere.
