Westpac may soon be offering a 35 year home loan, here’s what it could cost you
How long would you expect your mortgage to last? 25 years? Maybe 30? Well word on the street is that big bank, Westpac, is planning to start offering a 35-year home loan to borrowers under 35 years old.
Traditionally the standard loan term is around 25 or 30 years and with the prospect of a 35 year term being rolled out to customers, it could not only see a borrower’s repayments reduced, but it could mean greater access for Aussies gearing up to get onto the property ladder.
However, Mozo Banking Expert, Peter Marshall, has still urged borrowers to err on the side of caution.
“It’s great to see a bank like Westpac thinking of offering a product like this to customers. Loans with longer terms can make it easier for younger Australians to get their foot through the door, since the monthly repayments are a lot lower,” he said.
“But while I would encourage borrowers to take advantage of products like these, loans with a longer term are actually best treated as a short term strategy, because although you’re repayments are smaller, the extra interest you can end up paying due to the longer term goes through the roof.”
So with that in mind, we decided to put a 35 year loan term to the test using our home loan repayment calculator.
Say you took out a $400,000 loan with an LVR of 80% on the average variable rate in the Mozo database of 3.88% to be repaid over the standard term of 30 years, your monthly repayments would total to $1,882 and the total interest paid would hit $277,553.
On a loan term of 35 years, your monthly repayments would drop to $1,742 and your total interest paid a whopping $331,818 - $54,265 more than a 30 year term.
“Like any financial product you’re looking to take out, make sure you keep your eyes open and be fully aware of what you’re getting into,'' advised Marshall.
“If you are going to go with a longer term, it’s important to check that the loan allows extra repayments so that you can pay it off as fast as possible.”
But until Westpac or any other lender launches a 35 year home loan, you can compare current home loan offers by heading over to our home loan comparison tool.