Everything You Need to Know About Refinancing Loan Terms

Refinancing to change your loan terms means restructuring your mortgage to suit your current financial situation, not the one you had when you first borrowed.

Most borrowers in Kingston take out a 30-year home loan and leave it untouched until they move house or pay it off. But your income changes, your spending changes, and the property market shifts. Your loan structure should shift with it. Whether you want to reduce your monthly repayments, pay off your mortgage faster, or pull equity out for another purpose, changing your loan terms through a refinance is often the most direct way to do it.

Why Change Your Loan Terms Instead of Just Chasing a Lower Rate

Changing your loan terms addresses how your mortgage works, not just what it costs. A lower interest rate saves you money over time, but adjusting your loan term, repayment type, or offset structure changes your cashflow right now. Consider a borrower who refinanced from a 25-year remaining term to a 30-year term at a similar rate. Their monthly repayments dropped by around $400, which freed up enough cashflow to cover childcare costs without touching their savings. The total interest paid over the life of the loan increased, but the immediate breathing room was worth more than the long-term cost.

Some borrowers do the opposite. They refinance to shorten their loan term or increase repayments, which cuts years off the mortgage and reduces the total interest paid. Others want to switch from interest-only to principal and interest, or vice versa. The structure you choose depends entirely on what you need your mortgage to do for you right now.

Extending Your Loan Term to Improve Cashflow

Extending your loan term reduces your minimum monthly repayment by spreading the loan amount over more years. If you refinance a loan with 22 years remaining to a new 30-year term, your repayments drop immediately. This approach works well for borrowers whose income has reduced, who have new expenses like school fees or medical costs, or who want to free up cashflow for other investments.

The downside is that you pay interest for longer, which increases the total cost of the loan. But if the alternative is dipping into savings or missing repayments, extending the term makes sense. You can always make extra repayments later when your situation improves, provided your loan allows it.

Shortening Your Loan Term to Pay Off Your Mortgage Faster

Shortening your loan term increases your minimum repayment but reduces the total interest you pay and gets you mortgage-free sooner. If you refinance from a 28-year remaining term to a 20-year term, your repayments go up, but you could save tens of thousands in interest depending on your loan amount and rate.

This option suits borrowers whose income has increased, who have fewer financial commitments, or who are approaching retirement and want to clear their mortgage before they stop working. Kingston has a high proportion of public sector professionals who receive regular pay increases, and many use those increases to accelerate their mortgage repayments by refinancing to a shorter term.

Switching Between Principal and Interest and Interest-Only Repayments

Switching your repayment type changes what you pay each month and how quickly you reduce your loan balance. Principal and interest repayments pay down the loan amount over time, while interest-only repayments keep the balance unchanged and reduce your monthly outlay.

Investors often refinance to interest-only to maximise their tax deductions and preserve cashflow for other investments. Owner-occupiers sometimes do the reverse, switching from interest-only to principal and interest to start building equity again. If you took out an interest-only loan a few years ago and that period is about to expire, refinancing to extend the interest-only term or adjust the structure is common.

Accessing Equity by Refinancing to a Higher Loan Amount

Refinancing to access equity means increasing your loan amount and taking the difference as cash. This is often called a cash-out refinance. Borrowers use this approach to fund renovations, buy an investment property, consolidate debt, or cover other large expenses.

The key is that the equity you access is still borrowed money, so your repayments increase. If your property has increased in value since you bought it, you may have enough equity to borrow more without needing to provide additional savings or change your deposit ratio. Kingston properties have seen steady growth over recent years, and many borrowers who purchased five or more years ago now have significant equity available.

If you want to access equity for investment, refinancing to increase your loan amount and potentially split your lending across separate loans for tax purposes is a common structure. This keeps your owner-occupied and investment borrowing separate, which simplifies your tax return and gives you more control over repayments.

Adding or Removing Features Like Offset Accounts and Redraws

Changing your loan terms can also mean adding or removing features that affect how your mortgage operates day to day. An offset account links to your home loan and reduces the interest you pay based on your account balance. A redraw facility lets you access extra repayments you have made above the minimum.

Some borrowers refinance specifically to add an offset account if their current lender does not offer one or charges too much for it. Others refinance to remove features they do not use, which can reduce their interest rate or ongoing fees. If you have been making extra repayments into a loan without redraw and want access to those funds, refinancing to a loan with redraw or an offset is one way to regain that flexibility.

What Happens When Your Fixed Rate Period Ends

When your fixed rate period ends, your loan automatically reverts to your lender's variable rate unless you take action. That revert rate is often higher than the rate you could access by refinancing to a new lender or renegotiating with your current one.

This is also the time to reconsider your loan terms. If your financial situation has changed since you fixed, you might want to extend or shorten your loan term, adjust your repayment type, or add features your current loan does not include. Refinancing at the end of a fixed period avoids break costs and gives you the opportunity to restructure your loan without penalty.

How the Refinance Process Works When Changing Loan Terms

The refinance application process is similar to applying for a new home loan. Your lender assesses your income, expenses, and credit history to confirm you can afford the new loan structure. If you are extending your loan term or accessing equity, the lender also considers your property valuation and loan-to-value ratio.

You will need to provide recent payslips, bank statements, and details of your current mortgage. If you are accessing equity, the lender will organise a property valuation to confirm your property's current value. The process typically takes two to four weeks from application to settlement, depending on the lender and how quickly you provide documents.

Settlement costs include discharge fees from your current lender, application fees for the new lender, and government charges. These costs are usually a few thousand dollars, so factor them into your decision. If you are refinancing to save money, calculate how long it takes for your savings to exceed the upfront costs.

When Refinancing to Change Loan Terms Makes Sense

Refinancing to change your loan terms makes sense when your current loan structure no longer fits your financial situation. If your income has dropped and you need lower repayments, extending your loan term gives you immediate relief. If your income has increased and you want to pay off your mortgage faster, shortening your term accelerates that timeline.

It also makes sense when you need to access equity, switch repayment types, or add features your current loan does not offer. The cost of refinancing is usually outweighed by the benefit of a loan structure that actually works for you. A loan health check can help you assess whether your current loan terms still suit your situation or whether refinancing would put you in a stronger position.

Call one of our team or book an appointment at a time that works for you. We can review your current loan structure, run the numbers on different term options, and help you decide whether refinancing to change your loan terms makes sense for your situation.

Frequently Asked Questions