Will 40 year home loans become the new norm in Australia?
As Australian property prices continue to soar in Australia’s major cities and more and more Aussies retire later in life, over the next few years we could see home loan terms increase from the standard 25-30 years, up to 40 years.
“40 year mortgages have been around for some time, offered by banks like GE and Citibank, however for the vast majority of lenders this still hasn’t caught on yet,” says Mozo property expert Steve Jovcevski.
“With more Aussies than ever tipped to retire past 70, what we’ll likely see over the next few years, is a greater number of providers adopting longer term home loans.”
According to Steve, the real benefit of a home loan term stretched over a 40 year period, is significantly lower repayments. For instance, Mozo data shows a borrower with a $500,000 loan (and 4.5% interest rate) would have monthly repayments of just $2,248, compared to $2,779 with a 25 year term.
While Steve says 40 year mortgages could benefit borrowers wanting to get into the property market earlier without paying hefty monthly repayments, “stretching your term over a longer period, will result in far more interest paid over the life of the loan.”
As you can see from the table above, the term of your home loan can have a significant impact on how much extra you pay over the loan.
“If you are considering going with one of the lenders currently offering 40 year terms, my advice would be to take advantage of the lower repayments while you’re setting yourself up financially. But when any extra income comes in, from say a work promotion or tax return, ensure that you’re pumping it straight back into the loan.”
“That way by making extra repayments when you can, you’ll not only reduce the amount of interest you’ll pay but ultimately the life of the loan,” adds Steve.
Are you in the market for a home loan with a low rate and plenty of flexibility? Search over 500 deals today in Mozo’s comparison hub.