People of Australia: there’s another option to get your foot on the property ladder

People of Australia: there’s another option to get your foot on the property ladder

We all know Scott Morrison has shaken up the election with a new policy aimed at first home buyers.

But you may not realise that some lenders already offer special mortgage products designed to make it easier for first home buyers to access the property market.

They’re called 40-year home loans.

That makes them different from regular mortgages, which usually have loan terms of up to 30 years.

The benefit of a 40-year home loan is that you lower your monthly repayments, because they’re spread out over 40 years rather than 30.

The negative, though, is that you end up paying more in interest, because now you have to make 480 monthly interest payments instead of 360.

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Who offers 40-year home loans?

Not many lenders offer 40-year home loans. Here are some of the few who do:

Lender Product Advertised rate Comparison rate
SCU First Home Buyer Loan 3.77% 3.82%
Teachers Mutual Bank My First Home Loan 5.11% 5.11%
UniBank My First Home Loan 5.11% 5.11%
Resimac Accelerate 5.96% 5.99%

The reason that not many lenders have 40-year mortgage products is because they’re seen as being riskier than regular mortgages.

Why? Because some lenders feel that if someone doesn’t have the income and/or savings habits to pay off a home loan over 30 years, they might not be able to pay off a 40-year mortgage either.

How much does a 40-year home loan cost?

Cost is the main reason you might be tempted to choose a 40-year mortgage over a 30-year mortgage – and also why you might ultimately apply for the 30-year home loan.

Imagine, for example, you wanted to borrow $400,000, pay principal and interest, and make monthly repayments. If you had a 4 per cent interest rate, your monthly repayments would be $238 lower on a 40-year home loan, but your total repayments would be $114,962 higher.

Interest rate 4% Interest rate 5% Interest rate 6%
Monthly repayments – 30 years $1,910 $2,147 $2,398
Monthly repayments – 40 years $1,672 $1,929 $2,201
Difference $238 $218 $197
Total repayments – 30 years $687,478 $773,021 $863,352
Total repayments – 40 years $802,440 $925,814 $1,056,408
Difference $114,962 $152,793 $193,056

How to turn a 40-year home loan into a 30-year loan

By stretching out your debt over an extra decade, and by taking on higher repayments over the life of your loan, you’re potentially taking on more risk.

One possible way around that is to use a 40-year loan term as a starting point rather than an end point.

For example, if you’re young and have a low income, a 40-year home loan might make it easier for you to qualify for a mortgage and get your foot on the property ladder.

Then, in, say, five years, when your income was higher, you could refinance to a mortgage with a much shorter loan term. If your new loan had a 25-year term, you would end up paying off your property within 30 years.

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Learn more about home loans

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

What is the amortisation period?

Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
  • Your borrowing status (whether you are an owner-occupier or an investor)
  • Your loan-to-value ratio (LVR)
  • Your personal preferences (such as whether you want an offset account or to be able to make extra repayments)
  • Product information (such as a loan’s interest rate, fees and LVR requirements)
  • Market changes (such as when new loans come on to the market)

Mortgage Calculator, Loan Purpose

This is what you will use the loan for – i.e. investment. 

What is a specialist lender?

Specialist lenders, also known as non-conforming lenders, are lenders that offer mortgages to ‘non-vanilla’ borrowers who struggle to get finance at mainstream banks.

That includes people with bad credit, as well as borrowers who are self-employed, in casual employment or are new to Australia.

Specialist lenders take a much more flexible approach to assessing mortgage applications than mainstream banks.

Mortgage Calculator, Deposit

The proportion you have already saved to go towards your home. 

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

How is the flexibility score calculated?

Points are awarded for different features. More important features get more points. The points are then added up and indexed into a score from 0 to 5.

Mortgage Calculator, Repayments

The money you pay back to your lender at regular intervals.