Loan Tip: Loan Terms Shorter than 30 Years

Occasionally some of our clients ask for loan terms shorter than the maximum (generally) 30 years.

This is usually because the borrowers claim not to like debt and want to pay it off as soon as possible. Paying off debt is generally a good thing. Where the asset is an investment this may not be a good idea – but that is a story for another day.

Generally, it is safer to go for the maximum length possible. If they lender will approve a 30 year loan then it is best to take a 30 year loan.

Then you can pay extra over and above the minimum repayments, or better still, store excess cash in an offset against the loan.

This will allow you to pay the loan off faster, without penalty, but also to ease back on the repayments when you choose. If money gets tight for instance, the payments can be reduced to allow for the tough period to pass without default – or less chance. Where the offset has been used without paying extra this will provide even more buffer without losing the interest savings benefits.

A shorter loan term will also adversely affect serviceability. It will be harder to qualify for that loan and harder to qualify for future loans. This is because the shorter a loan is the higher the minimum repayments will be.

 

My view is this: it gives them a warm fuzzy feeling to lock away that cash.

How warm and fuzzy will you feel if you've lost your job or got hit by a bus and have no back up cash to keep you going.

Warm and fuzzy can go to hell.

 

Leverage is king.
What’s the oldest age can you refi up to another 30 years? The last hurrah

 

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