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Mortgage lenders offer 40-year home loans for first time buyers

9News.com.au logo9News.com.au 27/06/2019 Eddy Meyer

If you’ve taken out a mortgage recently, paying it off may seem like an impossible task.

Imagine, then, adding an extra ten or 15 years to your loan term.

That’s what some lenders are offering, though - 40-year home loans.

a sign on the side of a building: Some lenders are offering 40-year home loans. © Nine Some lenders are offering 40-year home loans.

“Some lenders are targeting first home buyers for those 40 year mortgages and that's not surprising because young buyers have time on their side,” says Sally Tindall from leading comparison site RateCity.

Right now, RateCity has identified six lenders who offer the longer terms.

SCU, Teachers Mutual Bank and UniBank offer them specifically to first home buyers.

a man wearing a suit and tie: Anthony Baum, Chief Executive of smaller lender Tic:Toc Home Loans, says it only offers 30 year loans © Nine Anthony Baum, Chief Executive of smaller lender Tic:Toc Home Loans, says it only offers 30 year loans

Resimac, Pepper Money and the Police Credit Union not specifically to first home buyers and on a case by case basis.

So why would you take out a 40-year mortgage? Lower repayments on the same loan amount.

Like any home loan product, it pays to shop around, however, with such a small pool of products to choose from, this can make it quite difficult to do.

Rates can be as low as 3.57 per cent but some 40-year loan term rates can climb over 5 per cent.

And paying for longer – well, obviously, that comes at a cost.

“It could be appealing to those who don't quite have the serviceability power to get their 30-year mortgage across the line,” says Sally Tindall.

a sign on the side of a building: Right now, RateCity has identified six lenders who offer the longer terms. © Nine Right now, RateCity has identified six lenders who offer the longer terms.

“However, if they are struggling to get a 30-year mortgage across the line, it might be worth sitting back and having a look at another way to get into the property market. It might be starting smaller, buy a smaller apartment, buy one that’s further out from where you want to live long term.

"Sometimes you’ve just got to think a bit differently and weigh up whether it’s worth it for your finances.”

That’s echoed by Anthony Baum, Chief Executive of smaller lender Tic:Toc Home Loans. Like most lenders, it’s maximum term is 30 years.

a screenshot of a cell phone © Nine

He says those offering 40-year loans are using the lure of lower repayments to target, mainly, first home buyers in an increasingly competitive home loan market.

“If you offer someone a 40-year loan, you’re probably talking their entire working life or a significant part thereof,” Anthony Baum told 9News. “And we believe 30 years provides room either side for other things.”

And, he says, adding years to a loan is not the answer.

a screenshot of a cell phone © Nine

“If you had an interest rate of 3.27 percent versus 4 percent like many other lenders, you would effectively equal the same saving to you as a customer each month.”

While most borrowers often refinance home loans – sometimes more than once – there is a trap in taking out a new mortgage for 25 or 30 years.

The best advice is to refinance, if you can, with your original term in mind, to avoid paying all that extra interest.

And then, of course, there’s the prospect of another official interest rate cut when the Reserve Bank meets next week.

Whether, or not, lenders pass all of it on, that will be the big question.

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