Australians are willing to take out a mortgage that they will likely still be paying off when they retire in return for some interest rate relief.
New research released by Finder shows one in three Australians surveyed would take out a 40-year loan if it reduced their monthly repayments to a more affordable level, even though it would cost them hundreds of thousands in the long run.
It would mean the average first homebuyer, at age 36, would still be paying off their home well into retirement or need to work longer.
Finder head of consumer research Graham Cooke said paying your mortgage from now until 2065 has pros and cons.
“Owning a home has felt out of reach for an increasing number of Aussies. A 40-year loan can help some buyers get into the market sooner by reducing monthly repayments,” he said.
“While these loans may have lower monthly repayments, they typically end up costing a lot more over time.”
The average Australian loan of $641,416 would drop by over $300 a month in repayments on a 40-year loan compared with an identical 30-year loan.
But it would cost the borrower an additional $316,000 in interest payments over the life of the loan.
“Essentially, these loans give you a reduction in your monthly cost in exchange for a significant increase in the cost of your mortgage overall,” he said.
“Borrowing costs and house prices have combined to make the housing market less affordable for many Aussies.”
The research from Finder comes a week after the Reserve Bank of Australia began its rate cutting cycle, where interest rates dropped from 4.35 to 4.10 per cent.
While the RBA did not stipulate further rate cuts, its forward estimates based on market expectations showed there could be a further 65 basis points in mortgage relief, bringing the official cash rate to 3.45 per cent.
Following the meeting Reserve Bank governor Michele Bullock said during a press conference she has received letters from struggling homeowners suffering through an extended period of crippling interest rates.
“I understand you are hurting, and I understand mortgage rates have increased a lot … but we need to get inflation down because that is the other thing that is really hurting you,” she said.
“If we don’t get inflation down, interest rates won’t come down, and you’ll be stuck with inflation and high interest rates.
“So, we have to be patient. I understand it hurts. But it’s really important that we get inflation down.”
Australia’s Cash Rate 2022
According to Finder four lenders currently offer a 40-year mortgage, with three of them offering it to first home buyers exclusively.
Non-bank lender Pepper Monday became the latest provider to bring in a 40 year loan to the market in late 2024.
At the time Pepper Monday general manager of mortgages and commercial property Barry Saoud said it would make home ownership more affordable by lowering the monthly repayments.
”Borrowers are consistently seeking greater flexibility beyond what banks typically can offer; so, as a non-bank, we are stepping in to fill the gap,” Mr Saoud said.
https://thewest.com.au/business/paying-your-house-until-2065-desperate-aussies-weigh-up-extra-long-mortgages-c-17831925
