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What is the average length of a home loan?

Mark Bristow avatar
Mark Bristow
- 4 min read
What is the average length of a home loan?

Many Australians start out with a 30-year mortgage, though shorter and longer home loan terms are also available from some lenders.  The length of your home loan can affect the cost of your repayments, as well as how much interest you’ll pay.

Banks and mortgage lenders will consider how a longer or shorter loan term will affect your repayments, as well as a wide range of other factors when assessing home loan applications. While most lenders will offer a mortgage for between 20 and 30 years, relatively few will offer longer home loan terms of up to 40 years, as this is almost half the average adult lifespan.

The longer your home loan, the less you’ll pay per month in principal and interest repayments. This is because your mortgage principal (your loan amount) is being divided between a greater number of repayments e.g. 360 for a 30 year loan, 480 for a 40 year loan. This can mean a longer home loan may be able to help keep a household budget more affordable.

However, interest is charged on each home loan repayment you make, based on how much of your mortgage principal is still left to be repaid. This means that the longer your home loan, the more often you’ll be charged interest on your loan. This can effectively increase the total cost of your property, as you’ll be charged more interest on your home loan.

Conversely, a shorter loan term (20 years, for example) may involve paying higher monthly repayments, but you may pay less total interest on your property.  

$400,000 home loan (paying principal and interest)

Interest rate 4%

Interest rate 5%

Monthly repayments – 20 years

$2424

$2640

Monthly repayments — 30 years

$1910

$2147

Monthly repayments — 40 years

$1672

$1929

Total repayments – 20 years

$581,741

$633,558

Total repayments — 30 years

$687,478

$773,021

Total repayments — 40 years

$802,440

$925,814

Source: RateCity, ABC News

Remember that just because you have a 30-year mortgage, that doesn’t necessarily mean your home will be paid off in 30 years. Depending on your choices and your financial situation, your home loan may take more or less time to pay off, which will affect the total cost of your loan. Generally, the longer it takes to pay off a mortgage, the more interest you’ll pay, while the faster you can pay off your home loan, the less it may cost you in total.

Your home loan may take longer to pay off if:

  • You refinance and switch to a longer loan term (e.g. paying off a 30 year loan for 5 years then refinancing to a new 30 year loan, meaning you’ll be making repayments for 35 years)
  • Making interest-only repayments for a few years – this can reduce your repayments and ease pressure on your budget, but you won’t be lowering your principal during the interest-only period
  • Taking a mortgage holiday or mortgage freeze – halting your repayments altogether for a time can be essential in some situations (such as when you’re facing financial hardship), but your interest charges will still be capitalised into your loan during this time.

Your home loan could be paid off sooner if:

  • You make extra repayments to help clear your mortgage principal sooner
  • You use your offset account to help reduce the interest you’re charged, so each repayment pays off more of your principal
  • You refinance to a lower interest rate but keep making the same repayments, so each repayment pays off more of your principal

To get a better idea of whether a shorter or longer home loan term may best suit your financial situation, you can calculate your home loan repayments or consider contacting a mortgage broker.

Compare home loans in Australia

Product database updated 22 Jun, 2024

This article was reviewed by Personal Finance Editor Peter Terlato before it was published as part of RateCity's Fact Check process.