Lenders offer 40-year mortgages to first-home buyers

Lenders offer 40-year mortgages to first-home buyers
Date of Publication: Friday, 14 February 2014 15:09

Lenders are offering mortgage loans spanning 40 years as consumers look to spread the burden of high housing costs across ever longer periods.


A variety of lenders, including Teachers Mutual Bank, Home Loans, and BCU, are offering 40-year loans, with the added interest from the extra years all boosting income.


Taking out a mortgage over four decades could end up costing hundreds of thousands of dollars more than if the loan is fully repaid over a 30-year term.


But the cost of housing, which continues to stretch beyond the means of younger buyers, has left many considering a longer-term loan to enable them to afford a purchase in the first place.


Brad Hedgman, the deputy CEO of Teachers Mutual Bank, said the institution launched 40-year loans several years ago when it realised the difficulties experienced by first-home buyers.


"We saw it as a way to help people who are struggling to get their deposits together," he said.


It's only available on our first homeowners’ loan product and comes with features including that they can borrow up to 98 per cent.


"About one third of all our first home buyers take up these loans."


Nevertheless, analysts are urging prospective buyers to be cautious about rushing into a commitment of this length.


Phil Naylor, the CEO of the Mortgage and Finance Association of Australia, said a 40-year loan set up a buyer with a 'mountain of interest'.


"For the extra interest you pay over the course of the loan that probably far outweighs the benefit you get by paying smaller payments each month," he added.


However, he acknowledged that the loans could be useful as a means of achieving a first-home purchase and said that buyers could seek to refinance once they had built up some equity on their property.


"The intention for most people who go into 40-year mortgages is that they would only stay with that mortgage until they were in a better position to pay off their loan quicker and then they would refinance into a shorter mortgage," he said.


Keith McDonald
Which4U Editor


If you found this article helpful, you can find more from us at our Finance Blog.

Friday, 14 February 2014 15:09
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