For many Australians, the possibility of entering the property ladder has been a nothing more than a pipe dream. High interest rates, increasing property prices and the strain of a cost-of-living crisis has led to a perfect storm of conditions that has meant the door to homeownership has been perpetually closed for some. But there may be a solution.

There is a school of thought that suggests introducing 40-year loan terms as a strategy to combat affordability issues, given that spreading the amount payable over 40 years instead of 30 will decrease the repayment amount.

Who Should Consider a 40-Year Mortgage?

Although a legitimate option for some, it is not necessarily ideal for all mortgage customers. Given that 40 years is a long time, the target demographic would be young people with stable job.

Why Consider a 40-Year Mortgage?

• Smaller monthly repayments as the longer loan term spreads them out over an extra 10 years.
• It may provide the gateway into home ownership otherwise not available for low-income earners and allows for more manageable repayments.
• For a person just starting out and with the bulk of their working life ahead of them, 40 years may seem a legitimate amount of time to still be in the workforce.
• For investors the lower repayments may create a higher rental yield.

Why Not to Consider a 40-Year Mortgage

• Quite simply, the longer the loan term, the more interest payable over the life of the loan.
• Depending on your age, it may prevent you from retiring when you would like or retire with a mortgage still in place.
• Given the longer loan term, you are saddled with the debt for many more years which may prevent you from doing other things.
• A longer loan term means the equity in your property will grow at a slower rate.

Are 40-Year Mortgages Available Now?

There are some lenders in Australia that have 40-year mortgage products however they are either niche lenders or products that come with a less than competitive rate. None of the major banks now operate in this space though that may change with considerable interest in solving the housing affordability issue many currently are facing.

For more information on this or if you have any other home loan related contact the Blackburne Mortgage Broking team.