40 year mortgages: are they worth it?

At first glance a 40-year home loan’s promise of lower monthly repayments may seem appealing. And with interest rates going up, many borrowers are looking for ways to ease the strain on their budgets. So the lower your repayments the better, right?
Well, it’s not quite so simple.
- What is a 40-year mortgage?
- Who are 40-year mortgages for?
- Pros and cons of 40-year mortgages
- 30-year vs 40-year mortgages
- How to compare 40-year home loans
- What types of 40-year mortgages are there?
What is a 40-year mortgage?
A 40-year mortgage is a home loan which you pay off over a period of 40 years. That part is obvious. They’re generally harder to find, with most home loans being 15-30 years long.
They usually result in lower monthly repayments due to stretching out the life of the loan, but will often charge a higher interest rate than their shorter-term counterparts.
But, as you’re tacking on more time to your loan, interest is applied for longer. This means that you’re likely to end up paying significantly more money by the end of it.
Who are 40-year mortgages for?
For those with time, like young first-home buyers, the prospect of a 40-year mortgage might not sound so bad if it means lower monthly repayments. Sure, you might finally pay-off your mortgage when you hit your 70s, but you theoretically will have had more disposable income or savings over your lifetime.
40-year home loans are also attractive to those with cash-flow issues, or those looking to get their foot in the door of a house above their monthly mortgage budgets, simply due to the lower cost of repayments.
Pros and cons of 40-year mortgages
Pros | Cons |
Lower monthly repayments | You’ll likely pay more interest over the life of the loan |
Potential ability to afford a more expensive house | The interest rates are usually higher than 15-30 year home loans |
You will stay in debt longer and won’t build up equity on your home as quickly | |
Fewer 40-year home loan options available |
30-year vs 40-year mortgages
Having an extra 10 years on the life of your loan means that there’s more time for interest to accrue. So, the short-term savings you might make with a 40-year home loan could be negated by the extra interest you’ll accrue by adding an extra decade to your loan period. For some, that’s a worry.
Let’s look at an example of how the length of your home loan affects both your monthly repayments and the overall cost of the loan.
Monthly repayments
Say Kath borrows $500,000 to buy a house. If she is charged an interest rate of 2.5% p.a., her monthly repayments for a 30-year mortgage would be $1,975. However, for a 40-year mortgage they’d be $1,650 — a difference of $325 per month.
Overall cost of Kath's loan
The total interest Kath will have paid on a 30-year home loan adds up to $211,217. However, with an extra decade on top, a 40-year home loan racks up $291,468. That’s a whopping difference of $80,251 in extra interest.
Choosing your home loan period is the classic short-term vs long-term dilemma, which you should definitely take your time deciding on.
How to compare 40-year home loans
As 40-year home loans are rare in Australia, it can be hard to choose between the ones on offer. Here are a few tips and things to think about, which might help you make a more informed decision about one of life’s biggest choices.
Consider the flexibility of your budget
When it comes to choosing how interest is applied to your loan, make sure you consider your budget. That is, how flexible are you if your monthly payments increase with the market rates? If the answer is, ‘I’d rather not think about it’, then it might be a good idea to look into a fixed interest rate.
Otherwise, there are also variable interest rates, which are good for taking advantage of the low interest rates and more favourable market conditions.
Are there any additional fees?
You should definitely consider how your lender treats additional fees. Some will charge for making early repayments, or maybe they’ll have monthly administration fees. Some lenders also charge discharge fees, which are applied when you exit your loan or pay off your balance in full.
Before you make your final decision, have a read through the loan’s product disclosure statement (PDS), so you’re aware of any extra fees that you’re agreeing to pay.
What types of 40-year mortgages are there?
- Rate could rise or fall depending on the market
- You have the option to make extra repayments to pay off your loan sooner and save on interest
- Lock in your whole home loan’s rate (or just a portion of it) for a set period of time
- Ensures consistency in repayment amounts, making it easier to budget
What is the average length of a home loan in Australia?
Most lenders in Australia offer loan terms of 30-years.
Home loan comparisons on Mozo - last updated 25 June 2022
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Smart Booster Home Loan
2 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR
interest rate
comparison rate
Initial monthly repayment2.60% p.a.variable for 24 months and then 3.00% p.a. variable2.96% p.a.New super low introductory rate home loan for two years. Min 20% deposit. No monthly or ongoing fees. Fast settlement times. Mozo award-winning online lender. Friendly, local Australian based team.
CompareCompareSmart Booster Home Loan
New super low introductory rate home loan for two years. Min 20% deposit. No monthly or ongoing fees. Fast settlement times. Mozo award-winning online lender. Friendly, local Australian based team.
- interest rate
- 2.60% p.a.variable for 24 months and then 3.00% p.a. variable
- comparison rate
- 2.96% p.a.
- interest rate
- 2.60% p.a.variable for 24 months and then 3.00% p.a. variable
- comparison rate
- 2.96% p.a.
- Upfront fees
- $520
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- Optional - with 0.10% additional interest
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $50,000
- maximum borrowing amount
- $1,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
Read our Mozo Review to learn more about the Smart Booster Home Loan
-
Featured Product
Neat Home Loan
Owner Occupier, Principal & Interest, LVR <60%
interest rate
comparison rate
Initial monthly repayment2.64% p.a. variable2.65% p.a.Low variable rate. Ideal for buyers or investors. No annual fees to pay. Unlimited additional repayments. Free redraw facility available. Fast digital application. 40% deposit required.
CompareCompareNeat Home Loan
Low variable rate. Ideal for buyers or investors. No annual fees to pay. Unlimited additional repayments. Free redraw facility available. Fast digital application. 40% deposit required.
- interest rate
- 2.64% p.a. variable
- comparison rate
- 2.65% p.a.
- interest rate
- 2.64% p.a. variable
- comparison rate
- 2.65% p.a.
- Upfront fees
- $250
- Ongoing fees
- $0.00
- Discharge Fee
- $300.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 60.00%
- minimum borrowing amount
- $80,000
- maximum borrowing amount
- $5,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
Read our Mozo Review to learn more about the Neat Home Loan
-
Unloan Variable
Owner Occupier, Refinance Only
interest rate
comparison rate
Initial monthly repayment2.64% p.a. variable2.56% p.a.For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.
CompareCompareUnloan Variable
For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.
- interest rate
- 2.64% p.a. variable
- comparison rate
- 2.56% p.a.
- interest rate
- 2.64% p.a. variable
- comparison rate
- 2.56% p.a.
- Upfront fees
- $0
- Ongoing fees
- -
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $10,000
- maximum borrowing amount
- $3,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
Read our Mozo Review to learn more about the Unloan Variable
-
Variable Home Loan
Owner Occupier, Principal & Interest, LVR <60%
interest rate
comparison rate
Initial monthly repayment2.64% p.a. variable2.66% p.a.Purchase and Refinance. Yard’s low-rate variable special home loan is packed with all features – unlimited additional repayments, free redraw, optional 100% offset account. Enjoy a simple online application.
CompareCompareVariable Home Loan
Purchase and Refinance. Yard’s low-rate variable special home loan is packed with all features – unlimited additional repayments, free redraw, optional 100% offset account. Enjoy a simple online application.
- interest rate
- 2.64% p.a. variable
- comparison rate
- 2.66% p.a.
- interest rate
- 2.64% p.a. variable
- comparison rate
- 2.66% p.a.
- Upfront fees
- $530
- Ongoing fees
- $0.00
- Discharge Fee
- $500.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- Optional - $10 per month
- Maximum loan to value ratio
- 60.00%
- minimum borrowing amount
- $150,000
- maximum borrowing amount
- $1,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
Read our Mozo Review to learn more about the Variable Home Loan
-
Momentum Home Loan
Owner Occupier, Principal & Interest, LVR <60%, Refinance Only
interest rate
comparison rate
Initial monthly repayment2.74% p.a. variable2.75% p.a.A great option for refinancers looking for an alternative, the G &C Mutual Bank’s Momentum Home Loan offers a competitively low rate for a fixed period. It features a 100% offset account in addition to unlimited extra repayments.
CompareCompareMomentum Home Loan
A great option for refinancers looking for an alternative, the G &C Mutual Bank’s Momentum Home Loan offers a competitively low rate for a fixed period. It features a 100% offset account in addition to unlimited extra repayments.
- interest rate
- 2.74% p.a. variable
- comparison rate
- 2.75% p.a.
- interest rate
- 2.74% p.a. variable
- comparison rate
- 2.75% p.a.
- Upfront fees
- $0
- Ongoing fees
- $0.00
- Discharge Fee
- $300.00
- Extra repayments
- yes - free
- Redraw facility
- yes - fees apply
- Offset account
- yes
- Maximum loan to value ratio
- 60.00%
- minimum borrowing amount
- $100,000
- maximum borrowing amount
- -
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
Read our Mozo Review to learn more about the Momentum Home Loan