When you refinance, the loan term resets unless you specifically tell your lender otherwise.
Most self-employed borrowers focus on the rate when they refinance, but the loan term determines how much you pay monthly, how much equity you build, and how quickly you can leverage that equity into your next purchase. Getting this decision wrong can cost you years of wealth accumulation.
Extending Your Loan Term: Cashflow vs Wealth Building
Extending your loan term when you refinance reduces your minimum repayment and increases monthly cashflow. If you refinance a loan with 22 years remaining into a new 30-year term, your repayments drop because the debt is spread over a longer period.
Consider a self-employed graphic designer who refinances a remaining balance with 20 years left. By extending to 30 years and securing a lower rate, monthly repayments drop by around $400. That extra cashflow goes directly into their offset account linked to the investment loan they're planning to draw from next year. The total interest paid over 30 years will be higher if they only pay the minimum, but they're not planning to do that. They're using the flexibility to control when and where they direct surplus income, which matters when your earnings fluctuate.
The risk is discipline. If you extend the term to improve cashflow but never make additional repayments, you'll pay more interest and build equity slower. For someone planning to access equity for their next investment property, that delay can mean missing a buying window.
Shortening Your Loan Term: Building Equity Faster
Shortening your loan term increases your minimum repayment but accelerates equity growth and reduces total interest paid. If you refinance a loan with 25 years remaining into a 15-year term, you'll repay the loan faster and own the property outright sooner.
This approach works when your income is stable enough to support higher repayments and you want to own the property outright within a specific timeframe. For a self-employed borrower planning to reduce working hours in 15 years, a shorter term aligns the loan with that goal.
The downside is reduced flexibility. If your income drops or you want to redirect funds toward another investment, you're locked into a higher minimum repayment. Missing that repayment has consequences, and lenders assess serviceability more strictly when the term is shorter.
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Keeping the Same Term: The Forgotten Option
You don't have to reset to 30 years when you refinance your home loan. If your current loan has 18 years remaining, you can refinance into a new loan with an 18-year term. Your repayments stay roughly the same, but you benefit from the lower rate without extending the debt.
This option gets overlooked because most refinance conversations default to a 30-year term. If you've been paying down your loan for years and want to maintain that momentum, ask your broker to match the remaining term. You'll save on interest without sacrificing the equity-building timeline you've already committed to.
The trade-off is that your cashflow doesn't improve as much as it would with a longer term. If you're planning to use refinancing to access equity for an investment property deposit, a shorter term might limit how much you can borrow against that equity because your serviceability is tighter.
How Loan Terms Affect Equity Access for Investment
When you apply to access equity for your next investment property, lenders assess whether you can service both the existing loan and the new borrowing. A longer loan term on your current property reduces the minimum repayment, which improves your serviceability and increases how much you can borrow.
In scenarios where a self-employed borrower wants to retain an investment property and buy another, extending the term on the first loan can unlock additional borrowing capacity. The lower repayment on the refinanced loan means more capacity to service the second investment loan.
If you shorten the term, your minimum repayment increases, which reduces serviceability. That might mean you can access the equity but can't borrow as much against it. For someone building a portfolio, that difference can determine whether you can afford the next deposit or need to wait another year.
Fixed vs Variable and How That Changes the Term Decision
If you're coming off a fixed rate and refinancing to a variable loan, the term decision becomes more flexible because you can make unlimited extra repayments without penalty. You can extend the term for cashflow but still pay it down faster by depositing surplus income into an offset account or making lump sum payments.
If you're refinancing into another fixed rate, extra repayment limits apply. Extending the term in that scenario means you're more likely to stay on the longer timeline because you can't make large additional payments without incurring break costs. That makes the term choice more permanent.
For self-employed borrowers with variable income, a longer term on a variable loan offers the most control. You're not locked into high repayments during lean months, but you can pay down the loan faster when income is strong.
Term Changes and Tax Deductions for Investment Properties
If the property you're refinancing is an investment, the loan term affects your deductible interest but doesn't change the deduction itself. Interest on investment property loans is fully deductible regardless of whether the term is 15 or 30 years.
What does change is your annual deduction amount. A longer term with lower repayments means you're paying more interest and less principal each month, which increases your deductible interest in the early years. A shorter term means you're paying more principal and less interest, so your deduction is lower.
This matters when you're managing cashflow across multiple properties. Extending the term on an investment loan increases your deductible interest, which reduces your taxable income. That can offset the income from the property and improve your after-tax position, especially if you're in a higher tax bracket.
Call one of our team or book an appointment at a time that works for you. We'll run the numbers on your current loan, show you what different term options look like for cashflow and equity growth, and structure the refinance around your next investment move.
Frequently Asked Questions
Does refinancing automatically reset my loan term to 30 years?
No, refinancing only resets your loan term if you don't specify otherwise. You can refinance into a loan with the same remaining term as your current loan, or choose a shorter or longer term depending on your cashflow and equity goals.
How does extending my loan term affect my ability to borrow for an investment property?
Extending your loan term reduces your minimum repayment, which improves your serviceability and can increase how much lenders will let you borrow. This can be useful when you're planning to access equity for your next investment property deposit.
Can I shorten my loan term when I refinance if I'm self-employed?
Yes, you can shorten your loan term when you refinance, but lenders will assess whether you can service the higher repayments based on your income. Self-employed borrowers need to demonstrate stable or sufficient income to support the increased minimum repayment.
Should I extend my loan term if I'm refinancing an investment property?
Extending the term on an investment property loan can improve cashflow and increase your tax-deductible interest in the short term. It also improves serviceability for future borrowing, but you'll pay more interest overall if you don't make extra repayments.
What happens if I refinance to a variable loan and want to pay it off faster?
If you refinance to a variable loan, you can make unlimited extra repayments without penalty. You can extend the loan term for flexibility but still pay down the loan faster by using an offset account or making lump sum payments when your income allows.
