There are however discussions gaining momentum amongst bigger lenders on the benefits of longer loan terms. Our finance partners have detailed for us the plusses and minuses of a longer loan term.

• Reduced repayments – With cost of living is a big issue at present, a reduction in mortgage repayments would be welcomed by most households.
• Increased serviceability – A lower repayment will increase serviceability and ultimately allow people to borrow more money,  whilst this can be seen as a way around the current serviceability issues caused by 3% buffers, you have to wonder if access to more money simply increases house prices, and what was gained from a longer loan term is offset by higher loan amounts.

Things to consider

• People are becoming first home owners later in life, 30 to 40 years of age is starting to be the norm, do we really want, or have the ability to repay a mortgage into our 70’s and possibly 80’s?
• Borrowers are already taking on longer loan terms without 40 year loans, it is common to see people refinance every 5 years, pushing loan terms back out to 30 years, do this twice and you have a 40 year loan.
• The difference in total interest repaid between a standard 30 year loan and a 40 year loan is staggering, see below table, based on an interest rate of 6.15%. The most surprising number for me is the small difference in monthly payment on a $500,000 loan. A $237 per month reduction will cost you $249,000 over the life of the loan.