Longer home loan terms are becoming an option for borrowers looking to reduce their minimum repayments. A 40 year mortgage spreads your home loan over a longer period than the standard 30-year term, resulting in lower minimum repayments but potentially more interest over the life of the loan.
A 40-year home loan can be used by owner-occupiers and property investors. For investors, a longer loan term can also provide additional flexibility to manage cash flow.
This guide explains how 40 year mortgages work in Australia, how repayments compare with a 30-year home loan, the potential impact on borrowing capacity and interest costs, and when a longer loan term may be worth considering.
A 40 year mortgage is a home loan with a maximum loan term of 40 years. It works much like a standard 30-year home loan, but the principal is repaid over a longer period.
With principal and interest repayments, spreading the loan across 40 years reduces the minimum repayment compared with repaying the same loan over 30 years.
The trade-off is that your loan balance reduces more slowly and interest is charged for longer. If you only make the minimum repayments, you will generally pay more interest over the life of a 40-year loan than a comparable 30-year loan.
Yes, 40 year mortgages are available in Australia, although they are less common than 30-year home loans. They are available through a smaller number of lenders, including some non-bank and specialist lenders such as Yard.
Yard is one of the lenders that offers a 40 year mortgage for eligible owner-occupiers and property investors. Principal and interest repayments are available, while eligible property investors can also choose an interest-only period.
A 40 year mortgage spreads your home loan across up to 480 monthly repayments, compared with 360 monthly repayments for a 30-year loan.
Each principal and interest repayment includes the interest charged for that period and a portion of the amount you borrowed.
Because the loan is being repaid over a longer period, the minimum repayment is lower. However, the principal also reduces more slowly.
This means equity in your home generally builds more slowly than it would with the same loan repaid over 30 years, assuming you only make the minimum repayments.
You don't necessarily have to take 40 years to repay a 40-year home loan. If your loan allows extra repayments, you can pay more than the minimum to reduce the balance faster while retaining the flexibility of a lower minimum repayment.
The main difference between a 30 year and 40 year home loan is the trade-off between lower minimum repayments and higher total interest. A 40-year term reduces the minimum repayment, while a 30-year term repays the debt faster and results in less total interest if only the scheduled repayments are made.
Here is an example based on a $600,000 home loan at an assumed interest rate of 6.00% p.a.
Example only. Assumes principal and interest repayments, a constant 6.00% p.a. interest rate for the entire loan term and no fees or additional repayments.
In this example, extending the loan from 30 to 40 years reduces the minimum repayment by approximately $296 per month, or $3,552 per year.
However, if only the minimum repayments are made, the 40-year loan results in approximately $289,586 more interest over the full loan term. The lower repayment on a 40 year mortgage is the minimum required repayment. If your loan allows extra repayments, you can choose to pay more when your finances allow, which can reduce your loan balance faster and lower the total interest paid.
Yes. A 40 year mortgage generally has lower minimum principal and interest repayments than the same loan repaid over 30 years.
In the $600,000 example above, extending the term from 30 to 40 years reduces the monthly repayment from approximately $3,598 to $3,301.
The actual difference will depend on your loan balance, interest rate, repayment type and other loan features. Importantly, the lower amount is your minimum required repayment. If your loan permits additional repayments, you can choose to repay more and reduce your loan balance faster.
You can use Yard's 40 year mortgage repayment calculator to compare how the loan term changes your minimum loan repayment.
A longer home loan term may increase borrowing capacity in some circumstances because it can reduce the repayment used when assessing the loan. However, a 40 year home loans in Australia does not automatically mean you will be able to borrow more.
When assessing home loan serviceability, lenders consider your income, expenses, existing debts, interest rate buffers and their own credit criteria.
A longer term can reduce the assessed repayment associated with the new loan. Depending on the lender's assessment methodology, this may improve borrowing capacity. This can be particularly relevant for borrowers who have sufficient income for a home loan but are constrained by serviceability calculations.
The effect varies by borrower and lender, so the best way to understand the difference is to compare your borrowing capacity over 30 and 40 years using the same financial position.
A 40-year investment loan allows an eligible property investor to finance an investment property over a loan term of up to 40 years. The longer term can reduce minimum repayments and provide additional flexibility when managing investment property cash flow.
Yard offers 40-year investment loan terms with principal and interest repayments and an interest-only option for eligible investors.
For example, an investor could have:
During an interest-only period, repayments generally cover the interest charged rather than reducing the principal. This can lower required repayments during that period, but the principal remains outstanding and the borrower will generally pay more interest overall.
For investors, the appropriate structure will depend on factors including cash flow, investment strategy, tax position and long-term plans for the property.
You should consider obtaining independent tax advice about the tax implications of your investment loan structure.
A 40-year home loan can provide borrowers with greater repayment flexibility. Some benefits include:
Spreading the principal over 40 years reduces the minimum principal and interest repayment compared with the same loan over 30 years.
Lower minimum repayments can leave more money available for living expenses, investments, business expenses or other financial commitments.
The lower assessed repayment may improve serviceability and borrowing capacity for some borrowers, subject to the lender's assessment and credit criteria.
If the loan allows additional repayments, you can pay above the minimum when your finances allow and reduce your principal faster.
This means a 40-year term does not necessarily mean taking 40 years to repay your mortgage.
For investors, a longer term can reduce minimum repayments and help manage property cash flow. Eligible investors may also have the option of an interest-only period.
The main disadvantage of a 40 year mortgage is the potential for significantly higher interest costs if you take the full 40 years to repay the loan.
Because interest is charged for longer, making only the minimum repayments can result in substantially more interest than repaying the same debt over 30 years.
Your principal reduces more slowly, which means you generally build equity through loan repayments more slowly than you would on a shorter term.
Property price movements will also affect your equity.
A borrower taking a 40-year loan later in life could still have a mortgage approaching or during retirement if they do not repay the loan early.
30-year terms remain more common, so borrowers looking specifically for a 40 year mortgage may have fewer lenders to choose from.
A 40-year home loan does not necessarily have the same interest rate as a comparable 30-year product. Compare the interest rate, fees, loan features and total cost rather than assessing the term alone.
A 40 year mortgage may suit borrowers who place a higher value on lower minimum repayments and repayment flexibility than on minimising the loan term.
It may be worth considering for:
A 40 year mortgage may be less suitable if your primary objective is to repay your home loan as quickly as possible and minimise total interest.
It may also be less suitable for some older borrowers. Lenders need to consider how a longer-term loan will ultimately be repaid, particularly where the term extends into retirement. Learn more in our guide to home loans when you're over 50.
You can reduce the total interest on a 40 year mortgage by paying down the principal faster or reducing the balance on which interest is calculated.
A longer contractual term doesn't prevent you from repaying your loan sooner if your loan features allow it.
Some options include:
Read our guide to paying off your mortgage faster.
A 40 year mortgage can be worth considering if lower minimum repayments and greater cash flow flexibility are more important to you than having the shortest possible loan term.
The key trade-off is straightforward:
A 40 year term can provide more flexibility when the loan also allows extra repayments and an offset account. You can retain the lower contractual repayment while choosing to reduce the balance faster when your finances allow.
Whether that trade-off is worthwhile depends on your financial circumstances, borrowing requirements and plans for the property.
Yard offers eligible owner-occupiers and property investors home loans with terms of up to 40 years.
Depending on the loan, features can include an offset account and fee-free extra repayments, allowing borrowers to reduce the interest charged while retaining the flexibility of a longer loan term.
Yard also offers:
If you're comparing a 30 year and 40 year mortgage, a Yard Consultant can show you how the different terms affect your minimum repayments and overall loan structure.
Yard offers home loans with terms up to 40 years for eligible owner-occupiers and property investors, alongside a full set of features to help you manage your loan your way. That includes an offset account to reduce the interest you pay over the life of the loan, your choice of variable, fixed or split rates, principal & interest or interest-only repayments, and flexible weekly, fortnightly or monthly repayments. Loans are available from $150,000 to $5,000,000 and LVR options up to 95% for home owners. Speak to a Yard Loan Consultant to help make the right choice for your circumstances.
A 40-year mortgage may be suitable if you value lower minimum repayments and greater cash flow flexibility. However, you will generally pay more interest if you make only the minimum repayments for the full 40 years.
The difference depends on your loan amount and interest rate. As an illustration, a $600,000 principal and interest loan at 6.00% p.a. has a monthly repayment of approximately $3,598 over 30 years and $3,301 over 40 years. That's a reduction of approximately $296 per month.
You can use a mortgage repayment calculator to compare the repayments across different loan terms to find a duration that suits your needs.
Potentially. You may be able to increase your repayments, change your loan structure or refinance to a shorter term later, subject to the relevant lender's terms and credit criteria.
Making additional repayments and using an offset account can reduce the balance on which interest is charged and help repay the loan sooner.
Yes, provided your loan terms and conditions allow additional repayments. A 40-year term establishes the maximum scheduled repayment period. It does not mean you have to take 40 years to repay the loan.
Yes, as a specialist lender for self employed, Yard offers 40-year home loan terms to eligible business owners, ABN holders and contractor borrowers, including borrowers who may require alternative income verification such as alternative documentations (low documentations). Subject to eligibility and credit criteria.
Yes. Some Australian lenders offer home loan terms of up to 40 years, although 30-year terms are more common. Yard offers 40-year home loans to eligible owner-occupiers and property investors.
It can. A longer term may reduce the repayment used in a lender's serviceability assessment, which can increase borrowing capacity in some circumstances. The result depends on the lender's assessment methodology, your income, expenses, debts and other credit criteria.
It depends on the lender. Thirty years is a common maximum home loan term in Australia, while some lenders like Yard offer terms of up to 40 years. The maximum term available to you will depend on the lender, product and your circumstances. Speak to a Yard Loan Consultant to understand which options may suit you.
You don't need to own the property for 40 years. If you sell the property, the outstanding home loan is generally repaid from the sale proceeds at settlement, along with any applicable discharge costs.
Yes. Yard offers loan terms of up to 40 years for eligible property investors, with principal and interest or interest-only repayment options depending on eligibility.
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Service requests: help@yard.com.au
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