ISCOVER
The mutual is targeting first home buyers with its 40-year mortgage.
Customer-owned lender Great Southern Bank has launched a variable-rate home loan, with terms of up to 40 years.
The mortgage product will be available to Australian citizens and permanent residents between 18 and 40 years of age, including first home buyers.
The home loan is designed for owner-occupiers wishing to purchase a new or existing home or looking to build a new home, which includes refinancing or the purchase of a land loan.
Borrowers can benefit from principal and interest or construction interest-only repayments. The loan offers a maximum 90 per cent loan-to-value ratio (LVR) (inclusive of fees).
Great Southern Bank will offer the loan with the option of LMI.
The bank expects that relatively few first-time customers will complete the full term of the loan and said it provides several options to help customers save and pay down loans early. That includes not charging fees for early repayments on its variable-rate loans and offering an offset home loan.
Great Southern Bank said the mortgage product offered the potential for lower monthly repayments, but acknowledged that longer-term loans could result in higher overall repayments over the life of the loan.
The mutual is targeting first home buyers with the new lending option and said it was one of the few longer-term loans in the market.
Research from the lender found that 29 per cent of Gen Z and Millennials and 19 per cent of Gen X would consider taking out a home loan for up to 40 years if it meant lower repayments.
Rolf Stromsoe, chief customer officer, commented: “For some Australians, having lower monthly repayments is the difference between renting and buying their first home.
“This could be their ‘starter home loan’ – exactly what they need to get their foot in the door at the beginning of their home ownership journey.
“As their needs evolve and their earnings capacity changes, they may refinance any number of times – but this is the loan that can start it all.”
A small number of non-bank and customer-owned lenders offer 40-year home loans, although affordability for first home buyers at record lows is leading to more exploring the space.
Pepper Money and Credit Union SA offer home loan terms up to 40 years, while G&C Mutual Bank offers 40-year variable-rate mortgages to first home buyer owner-occupiers.
Australian Mutual Bank and RACQ Bank both offer 40-year home loans targeting first home buyers.
None of the big four banks currently offers 40-year mortgage products.
Brokers have also been increasingly using 40-year loan terms to help clients.
Joseph Daoud, mortgage broker and founder of It’s Simple Finance, told The Adviser that longer loan terms were helping clients get into the market sooner.
“I still remember they [the client] had $114,000 in debt remaining but the apartment was worth $400,000. If you quickly take 80 per cent of that, it was $206,000 worth of equity,” he said.
“They thought to themselves they were going to have to wait another year, a year and a half, to be able to purchase a property. But I quickly recognised that the property market’s gone up and I go: ‘Guys, we’ve got a lender that will do a 40-year loan term with monthly LMI if you do want to go buy a more expensive property’.
“So rather than focusing on using a 20 per cent deposit, I was explaining to them if we use a 10 per cent deposit, it might cost you a little bit more upfront now in your monthly repayments; however, you’re going to gradually be able to refinance that debt...
“So it was the most exciting thing in the world because I helped someone who thought that they were going to have to wait 18 months to purchase their next property, be able to purchase in three months."
[Related: Affordability for first home buyers falls to record low]
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