Despite the fact that property prices have cooled slightly in the final months of 2017, taking out a home loan remains a financially daunting prospect for many Australians - particularly first home buyers.
But SCU may have just the solution for younger Aussies trying to get into the property market, with today’s launch of a new 40 year home loan aimed at providing a “more affordable” option for first home buyers.
Featuring a competitive 3.77% variable interest rate (3.81% comparison rate*), the new 'First Home Buyer Loan' offer from SCU is one of the few 40 year home loans on the market and is only available to first home buyers.
“With the high price of property in many of Australia’s capital cities, not to mention the fact that the age of retirement is trending older, it wouldn’t surprise me to see longer loan terms like this becoming more and more prevalent in the future,” said Mozo Property Expert, Steve Jovcevski.
“What young buyers need to keep in mind though is the trade off between being able to make lower loan repayments on the one hand, while forking out far more in interest over the life of a longer loan.”
So how would opting for a home loan with a longer term affect your repayments and the total interest you pay?
Say you take out a loan of $400,000 to buy your first property which has an interest rate of 4% over a standard period of 25 years. According to the Mozo Home Loan Repayments Calculator, you would be making principal and interest repayments of $2,111 each month and your total interest payment over that 25 year period would be $233,404.
In comparison, a loan of the same amount with the same interest rate would set you back just $1,615 in monthly repayments if your loan period was 40 years - a considerable saving of $496 each month. However, given that the loan is 15 years longer, you would end up forking out $402,422 in total interest - a whopping $169,018 higher.
“While first home buyers need to seriously weigh up the pros and cons of a longer loan term, they will always have the option of refinancing to a better value deal, or making extra repayments in order to pay off the loan faster and cut down the total interest they’ll pay,” said Jovcevski.
Are you looking to get into the market for the first time in 2018? Head over to the Mozo Home Loan Comparison hub to compare a range of low interest loans, or check out some of the handy guides for first time buyers here.
*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The
comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.