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.
Length of mortgage comparison
Let's compare a 25 and 30 year mortgage.
|Loan details||25 Years||30 Years|
|Interest rate||6.70% p.a.||6.70% p.a.|
|Total interest payable||$318,982||$396,900|
* 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.
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 loan||Refinance after 5 years|
|loan term||30 years||30 years (which means a real overall loan term of 35 years)|
|interest rate||6.70% p.a.||5.70% p.a.|
|total interest payable||$396,900||$404,266 ($306,645 in interest from the point of refinancing)|
* based on monthly, principal and interest repayments
Compare refinance home loans today
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Australian borrowers could save up to $60,000 by refinancing right now
There are very low mortgage rates on offer, but borrowers who don't switch are missing out. Let's crunch the numbers.
Home Loan OffersImportant Information*
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.
Up to $4,000 refinance cashback. A competitive variable rate loan from St.George. Refinancers borrowing $250,000 or more can get $4,000 cashback (Other terms, conditions and exclusions apply).
A competitive variable rate mortgage for owner occupiers $0 application and $0 ongoing fees. This interest rate falls over time as you pay off the loan.
Take advantage of a low-fee mortgage with a special interest rate of just 2.49% p.a. and a 2.49% p.a. comparison rate.
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