Refinance - Increase duration or keep the same

Hi,

I am currently looking to refinance two properties. One of them as 25 years left on it and the other 27. Both on P&I.

I am confused as to whether i should refinance to a 30 year loan again and hence have some flexibility where if I need to i can drop to a minimum payment, but unless i need to, i can continue paying as if i am at a 25 and 27 year loan respectively. I do feel like while i wouldnt squander this money, i will not stick to the plan and instead get tempted by other investment options (shares for example) if i see cash sitting in redraw or offset. On the other hand if i get into any financial hardship i could drop to the minimum payable. This option frees an extra 400 per month for me at present and would move up or down as the interest rates change.

OR keep the same loan duration as before for each and keep paying down the loan as that enforces the necessary discipline to ensure i am continuing to get out of debt.

What would you do?

 

I would extend the loans back out to 30 years. Then decide if I wanted to put the additional repayments into the loan or into other investments. Either would be acceptable to me.

I’d only be worried if you thought the extra funds would be spent on “lifestyle” improvements.

Regards,

Jason

 

Generally, we'd extend back out to 30 years for precisely the reasons you state.

If you're buying shares with the cashflow, is it really such a bad thing? If you were blowing it on cake and sparklers, sure...but growing your asset base is fine if it's in line with your strategy.

There's no point reducing debt if you're still in accumulation phase.

 

The shorter the loan term, the higher the repayments will be. You could take the longer loan term and nominate higher repayments. If things get tight, you can then opt to lower the repayments (which you could not do with a shorter loan term). This way you're in control of your cashflow.