Would You Take Out a Home Loan Until 2063?

When choosing your home loan one of the important considerations is to ensure the loan-term matches your financial goals, this is especially the case for those considering the few 40 year long loan terms on the market.

Loan Market Corporate Spokesperson Paul Smith said that there were a handful of lenders in Australia offering a near half-century long loan term, however this type of loan term is not available to your average borrower and won’t likely be in the foreseeable future.

“A 40 year mortgage will cost you more in interest and you’ll build equity at a slower pace. The biggest single advantage of these products is that you can moderately reduce your mortgage repayments,” Mr Smith said.

Mr Smith said that on a $300k loan at an interest rate of 6 per cent you could reduce your loan repayments by $300 a month by switching from a 25 year loan term, to a 40 year term.

“While your repayments are lower on a longer term, you should carefully weigh up those added savings against the additional interest you’ll have to pay over time.”

Mr Smith said that the only 40 year loan terms on offer in Australia were suited towards non-conforming borrowers, which were for borrowers with past credit impairments or limited financials. The 40 year long term also came with a variable interest rate around 150 bps above most other 25 year terms.

“The 40-year term is certainly not geared towards your average borrower and lenders are showing no appetite at all towards making these products as popular as shorter term products available.”

Mr Smith said that one of the consumers groups that often looks at a 40 year loan term were property investors because the lower repayments created a higher rental yield.

“These types of products can be attractive to property investors because the lower repayments will create a larger buffer between rental repayments,” said Mr Smith.