How Long Should My Home Loan Be? | Finder

How long should my home loan be?

The longer your repayment term the more interest you pay. Work out how long your mortgage needs to be.

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The longer the term is, the lower your repayments will be over time, but the more interest you'll pay. A few years can make a significant difference in the overall cost of your home loan.

But the longer the term, the lower your repayments will be every month. While a 30-year loan term costs you more by the end, the repayments are cheaper and more manageable every month. Most borrowers choose 30-year loan terms for this reason.

Length of mortgage comparison

Let's compare a 25 and 30 year mortgage.

Loan details25 Years30 Years
Loan amount$300,000$300,000
Interest rate6.70% p.a.6.70% p.a.
Monthly repayment$2,063$1,936
Total interest payable$318,982$396,900
Interest saving$77,918

* based on monthly, principal and interest repayments

In this example, the choice of a 25 year home loan length does cost the borrower an extra $127 per month compared with a 30 year loan, but it also saves the borrower a staggering $78,000 over the life of the loan.

On the other hand, a 30 year loan term has lower repayments, as you now have five additional years to pay off the same loan amount. However, you'll also be paying interest for an additional five years.

Generally speaking, home loan terms can include 10, 15, 25, 30 or even 40 year loan terms. 25 and 30 year loan terms are the most common, with 10 and 15 year loan terms generally being confined to interest-only repayments and 40 year loan terms only offered by a small number of lenders.

Choosing to take out a home loan with a 40 year term will have even lower repayments than a 30 year loan term—$1,805.20 on $350,000 loan with a rate of 5.50% compared to $1,987.26 with a 30 year loan term, or $2,149.31 on a 25 year loan term. It’ll also come with a much larger interest bill—$516,496 vs $365,413.60 on a 30 year loan.

Learn more about 40 year home loan terms

Even if you have a longer loan term, you may be able to make additional repayments or make use of repayment strategies which decrease your loan term. Making additional repayments or lump sum payments, or splitting your monthly loan repayment into fortnightly payments can see you pay your loan off in a shorter time period.

Refinancing mistake: refinancing to a lower interest rate and not adjusting your loan length

One mistake to avoid is refinancing to a cheaper interest rate and taking out a new 30 year term. This can erode your refinancing savings, as you can see below.

Original loanRefinance after 5 years
loan term30 years30 years (which means a real overall loan term of 35 years)
loan amount$300,000$281,470
interest rate6.70% p.a.5.70% p.a.
monthly payment$1,936$1,634
total interest payable$396,900$404,266 ($306,645 in interest from the point of refinancing)
interest saving$7,365

* based on monthly, principal and interest repayments

Compare refinance home loans today

Data updated regularly
$
years
Name Product Interest Rate (p.a.) Comp. Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
Suncorp Home Package Plus Fixed
1.89%
2.85%
$0
$0 p.a.
80%
$547.35
Lock in a low fixed rate loan for two years and get the annual package fee waived in the first year. Available for borrowers with 20% deposits.
HSBC Fixed Rate Home Loan Package
1.88%
2.86%
$0
$390 p.a.
80%
$546.6
$3,288 refinance cashback offer
Lock in a low fixed rate for 2 years and buy your home with a 20% deposit. Eligible refinancers borrowing $250,000 or more can get a $3,288 cashback. Terms and conditions apply.
UBank UHomeLoan Fixed
1.75%
2.22%
$0
$0 p.a.
80%
$537
This very low fixed rate is only available until 29 April 2021. Other conditions apply. A competitive fixed rate loan with no ongoing fees. Requires a 20% deposit
Westpac Flexi First Option Home Loan
2.29%
2.72%
$0
$8 monthly ($96 p.a.)
95%
$577.55
Up to $3,000 refinance cashback.
A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.
St.George Fixed Rate Advantage Package
1.84%
3.38%
$0
$395 p.a.
80%
$543.64
Up to $4,000 refinance cashback
Borrowers with 20% deposits or equity can get this competitive fixed rate loan. Refinancers borrowing $250,000 or more can get up to $4,000 cashback (Other terms, conditions and exclusions apply).
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