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Australians are being urged to consider the long-term financial implications of taking out mega mortgages before applying, with new research from Finder highlighting concerns about the growing popularity of 40-year home loans.
A Finder survey of 1,013 respondents revealed that 30 per cent of Australians – equivalent to 6.2 million people – would consider taking out a 40-year home loan if it reduced their monthly repayments to a more affordable level.
Currently, four lenders offer 40-year mortgages in Australia, with three of those exclusively available to first home buyers, according to Finder’s analysis.
The average home loan size in Australia has reached a record high of $641,416, according to data from the Australian Bureau of Statistics (ABS, September 2024). This figure represents a 37 per cent increase from September 2019, when the average loan size was $467,403.
Graham Cooke, head of consumer research at Finder, said that committing to a 40-year mortgage had both advantages and disadvantages.
“Owning a home has felt out of reach for an increasing number of Aussies,” he said. “A 40-year loan can help some buyers get into the market sooner by reducing monthly repayments. While these loans may have lower monthly repayments, they typically end up costing a lot more over time.”
Finder’s analysis revealed that, for the average Australian loan of $641,416, monthly repayments would decrease by over $300 on a 40-year loan compared to an identical 30-year loan. However, the total repayment over the life of the loan would increase by $316,000.
“Essentially, these loans give you a reduction in your monthly cost in exchange for a significant increase in the cost of your mortgage overall,” Cooke said.
“Borrowing costs and house prices have combined to make the housing market less affordable for many Aussies. While 40-year loans do offer a lower-cost route to getting your first foot on the housing ladder, staying with them until the end can be very expensive.”
Cooke also said that competition was returning to the home loan market, offering some relief to borrowers.
Indeed, all four of the major lenders announced rate cuts to their variable rate home loans of 0.25 per cent p.a. following the Reserve Bank of Australia’s (RBA) first rate cut in over four years.
Non-banks and non-majors such as Wave Money, Bluestone Home Loans, RedZed, and Bendigo and Adelaide Bank quickly followed suit soon after, offering more relief and options for borrowers.
“I naively took out a 40-year loan when purchasing my first apartment, only to quickly realise how costly it would be in the long run. Fortunately, I was able to sell the apartment a few years later,” he said.
“The good news for those struggling is that what goes up must come down, and the cash rate has now fallen – welcome relief for those who have overextended themselves. Before extending your loan term to ease cash flow pressure, consider refinancing to a cheaper variable rate first.”
[RELATED: More lenders pass along interest rate cuts]
