A recent study has revealed that a significant number of Australians may consider extending their mortgage terms to alleviate the burden of hefty monthly repayments. Specifically, one in three respondents is open to taking on “mega mortgages” with a 40-year duration as a means to lower their financial obligations, despite the warning from experts about the potential long-term costs.
Finder’s survey, which gathered insights from over 1,000 Australians, shows that 30% are willing to adopt a 40-year mortgage to make their repayments more manageable. This indicates that approximately 6.2 million individuals could be contemplating extending the lifespan of their home loans by a decade. Yet, only four lenders in Australia are currently offering such long-term mortgages, and they do so exclusively for first-time home buyers.
The typical mortgage in the market today spans 30 years. Graham Cooke, Finder’s head of consumer research, cautioned that opting for a 40-year term can be a substantial financial blunder. While these loans present lower monthly costs, they can result in higher overall expenses. Cooke commented, “It can be tempting to choose a longer loan for immediate relief, but this often leads to paying significantly more interest over time.”
Research indicates that stretching a mortgage over an additional ten years could reduce monthly payments on an average mortgage of $641,416 by about $300. However, this also translates into an extra $316,000 in interest payments throughout the mortgage’s life. Cooke shared his personal experience of taking out a 40-year loan for his first apartment, only to realise its costly implications shortly thereafter. Fortunately, he managed to sell the property a few years later.
Financial institutions such as SCU, Teachers Mutual Bank, and UniBank have previously provided 40-year loans specifically for those purchasing their first home. Other lenders, including Resimac and Pepper Money, have occasionally offered such loans on a case-by-case basis, generally focusing on first-home buyers.
In summary, while the allure of lower monthly repayments through extended mortgage terms may seem appealing to many Australians facing financial strain, the long-term ramifications could lead to significant extra costs, making this a critical financial decision for prospective borrowers.