{"id":5349,"date":"2023-11-16T09:29:06","date_gmt":"2023-11-15T23:29:06","guid":{"rendered":"https:\/\/financialplus.com.au\/?p=5349"},"modified":"2023-11-16T09:29:06","modified_gmt":"2023-11-15T23:29:06","slug":"the-big-stretch-should-you-extend-your-loan-term","status":"publish","type":"post","link":"https:\/\/financialplus.com.au\/the-big-stretch-should-you-extend-your-loan-term\/","title":{"rendered":"The big stretch: should you extend your loan term?"},"content":{"rendered":"

\"\"If the November rate hike will seriously stretch your finances, one potential solution may be to extend your loan term. It can ease the hip pocket pain by lowering monthly repayments. But taking more time to pay off your mortgage can come with hidden downsides. Here\u2019s what to weigh up.<\/strong><\/p>\n

Will the RBA\u2019s latest 0.25% cash rate rise squeeze you financially? (not to mention the other 12 rate hikes!)<\/p>\n

The majority of lenders lost no time increasing their variable home loan rates following the Reserve Bank of Australia\u2019s 0.25% Melbourne Cup Day rate rise.<\/p>\n

According to\u00a0Mozo<\/a>, the 13th rate hike since May 2022 has pushed up the average variable rate to 6.62%.<\/p>\n

What does that mean in dollars and cents?<\/h3>\n

On a $500,000 variable rate home loan payable over 25 years, the latest 0.25% rate hike can see monthly repayments jump by $78.<\/p>\n

For homeowners who didn\u2019t have much fat left to cut from their budget, those extra dollars can be hard to find.<\/p>\n

One potential strategy that may help to lower repayments is to stretch out your loan term.<\/p>\n

How extending your term can reduce repayments<\/h3>\n

If you have a 25-year loan, your lender may give you the option to extend for up to five more years, possibly pushing out the term to 30 years.<\/p>\n

If you get the green light, this kind of reset can significantly lower your monthly repayments.<\/p>\n

On the $500,000 mortgage we looked at earlier, moving from a 25-year loan to a 30-year loan could cut monthly repayments by around $214 \u2013 even after allowing for the November rate hike.<\/p>\n

The hidden cost of a longer term<\/h3>\n

There\u2019s a lot to love about the prospect of slashing a couple of hundred bucks off your loan repayments each month, especially as we head into the festive season.<\/p>\n

But pushing out your loan term can come with a hidden cost.<\/p>\n

Taking longer to pay down your loan means you\u2019re also paying interest for longer. And while your repayments can decrease, the long-term interest cost can skyrocket.<\/p>\n

Stretching a $500,000 loan from 25 to 30 years could mean paying a whopping $128,000 more in total interest.<\/p>\n

It\u2019s worth keeping in mind though that those extra interest repayments aren\u2019t a given.<\/p>\n

You may be able to close the gap and cut down the interest cost by either making extra repayments in the future, loading up an offset account, or paying off the loan early (if, for example, you receive a lump sum inheritance).<\/p>\n

So the upshot is that stretching your loan term can be a short-term fix now, but you\u2019ll have to weigh up the costs against the benefits, not to mention whether you think you\u2019ll be in a better financial position later down the track to pay down the loan quicker (and thus reduce the interest payments).<\/p>\n

Other ways we can help<\/h3>\n

Along with exploring extending the length of your loan, we could also help you look into\u00a0other solutions<\/a>\u00a0to ease the pain of higher rates.<\/p>\n

Options that may be available with your lender include:<\/p>\n

\u2013 temporarily lowering your loan repayments;
\n\u2013 deferring repayments for a while; or
\n\u2013 shifting you to interest-only payments for a set period.<\/p>\n

The common thread is that the earlier you reach out for assistance, the sooner we may be able to help you get some financial relief.<\/p>\n

Disclaimer:<\/strong>\u00a0The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.<\/p>\n","protected":false},"excerpt":{"rendered":"

If the November rate hike will seriously stretch your finances, one potential solution may be to extend your loan term. It can ease the hip pocket pain by lowering monthly repayments. But taking more time to pay off your mortgage can come with hidden downsides. Here\u2019s what to weigh up. Will the RBA\u2019s latest 0.25% […]<\/p>\n","protected":false},"author":23,"featured_media":5350,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[110],"tags":[],"class_list":{"0":"post-5349","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-home-loans","8":"entry"},"yoast_head":"\nThe big stretch: should you extend your loan term? · FinancialPlus Mortgage Broker Gold Coast<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/financialplus.com.au\/the-big-stretch-should-you-extend-your-loan-term\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The big stretch: should you extend your loan term? · FinancialPlus Mortgage Broker Gold Coast\" \/>\n<meta property=\"og:description\" content=\"If the November rate hike will seriously stretch your finances, one potential solution may be to extend your loan term. 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