Consumer advocate slams 40-year mortgages

The difference between a 30- and 40-year loan on a $300,000 home is $140,800 in extra interest, according to Choice.

“Taking a 40-year loan because you can’t afford monthly repayments for a 30-year loan can backfire if your interest rate goes up again,” the group said.

“While the prospect of owning a home when you have little in the way of savings may seem appealing, if you lose your job, get sick or are unable to keep up with the repayments, it may not be long before the bank asks you to sell your house, or repossess it.”

Adrian Bartels from Bartels Property Finance said 40-year loans benefitted lenders rather than borrowers.

“I’ve never done one and I think you would need to be very, very careful in doing one,” he told The Adviser.

“The borrower would have to be vigilant in their own organisation so they don’t take 40 years to pay it off. If it takes 40 years to pay off, it’s not in the client’s interest because the interest repayments would be so high.”

However, FBAA president Peter White said there was no reason why a 30-year loan should be regarded as more ethical than a 40-year loan.

There was nothing wrong with a broker writing a 40-year loan as long as it suited the borrower’s needs and financial capacity, Mr White said.

He also dismissed the idea that borrowers do not deserve mortgages if they cannot pay them off within 30 years.

Mr White said Australians are set to work and earn for longer after the federal government raised the pension eligibility age from 67 to 70 effective in 2035.