Aussies Consider Longer Loan Terms to Ease Mortgage Stress
As the cost of living crisis continues, one in three Australians say they would consider taking on a 40-year mortgage to reduce their monthly repayments, despite the significant long-term financial impact.
New research from Finder shows that while extending the loan term can provide short-term relief, it could leave many homeowners still paying off their properties well into retirement. With the average first-home buyer age at 36, a 40-year loan could mean making mortgage payments until 2065 or delaying retirement to cover the debt.
The Cost of Extending Your Mortgage
A 40-year mortgage can lower monthly repayments, making home ownership more accessible. For example, a $641,416 loan would see a monthly repayment reduction of over $300 compared to a traditional 30-year loan.
However, the trade-off is steep—borrowers could end up paying an additional $316,000 in interest over the life of the loan.
“Essentially, these loans reduce short-term pressure but come at a high long-term cost,” said Finder’s head of consumer research, Graham Cooke. “Borrowers need to weigh the affordability benefits against the total amount they’ll repay over time.”
What’s Driving the Demand for 40-Year Loans?
Australia’s Official Cash Rate
Rising borrowing costs and soaring property prices have pushed many Australians to consider longer mortgage terms. The recent Reserve Bank of Australia (RBA) rate cut from 4.35% to 4.10% has provided some relief, with further reductions expected to bring the cash rate down to 3.45%.
Despite this, many homeowners remain under financial strain. RBA Governor Michele Bullock acknowledged the pressure on borrowers, stating, “We understand the pain, but we need to bring inflation down to ensure long-term economic stability.”
Are 40-Year Mortgages the Right Move?
Currently, only a handful of lenders offer 40-year mortgages, primarily targeted at first-home buyers. Non-bank lender Pepper Money was the latest to introduce the product, arguing that longer terms provide greater flexibility.
However, financial experts warn that while these loans may ease short-term stress, they extend financial commitments well beyond the traditional retirement age, making them a risky option for long-term wealth building.
If you’re considering extending your mortgage or want to explore more financially sustainable options, Boa & Co. Chartered Accountants can help you navigate the best strategy for your financial future. Contact our expert advisors today at 1300 952 286, email [email protected], or visit www.boanco.com.au to discuss your mortgage and financial planning needs.