The 40-year mortgage: great or gimmick?

Thirty years ago, Paul Keating was prime minister, Qantas was still government-owned and Telstra was known as Telecom Australia. If you'd taken out a home loan back then, you'd probably expect to have it paid off by now. And you likely would have – but a new range of products hitting the market could change that.

Fourty-year home loans offer lower monthly repayments but can be significantly more expensive in the long run. They also represent a long financial burden. If you were close to paying one of these off today, you'd have taken it out before the TV show Neighbours first aired.

The 40-year home loan isn't a new idea, it has existed in Europe for decades, however it was only very recently introduced in Australia.

The hunger for housing

The appetite from consumers for any form of shortcut into Australia's property market is already strong. Small deposits that fall under the traditional 20% deposit size have become extremely popular. In 2025, 70% of first home buyers said they wouldn't wait to save the conventional 20% deposit before purchasing, according to Finder's First Home Buyer Report.

It comes as no surprise then that separate research from Finder's Consumer Sentiment Tracker (CST) found 30% of Australian's would take out a 40-year mortgage if it reduced their repayments to a more affordable level. This product is particularly popular among younger generations. Almost half (45%) of Gen Z and 39% of millennials are open to the idea.

The short-term pros vs the long-term cons

Adding a full decade onto the length of a home loan does reduce repayments significantly. Australians paying a 5% interest rate on a $500,000 mortgage would save $3,278 each year on their repayments. On a million dollar mortgage the yearly repayment savings would be $6,555.

The short-term benefits are helpful for consumers who might be able to afford the deposit on their dream home but can't afford the repayments on a 30-year loan. However, the short-term savings are meagre when compared with the cost of an extra 10 years worth of repayments.

In our example (using a rate of 5%) taking out a 40-year loan increases the total interest repaid on the loan by 28% and only reduces the monthly repayments by 10%.

A 40-year loan costs an extra $128,986 in interest. Interestingly, the added 10 years at an average interest rate of 5% will mean that you repay more in interest than you borrowed initially.

The average age of a first home buyer in 2025 is 37. Taking out a 40-year mortgage at this age would mean making repayments until you're 77 – well into retirement.

However, a 40-year home loan could be a useful tool for borrowers who have a deposit but need to increase their borrowing power or create a buffer for repayments.

Graham Cooke, Finder's Head of Consumer Research, advises caution: “I took out a 40-year loan as a student in Ireland. I honestly can’t believe now that I was able to get a home loan then, but I was very shocked at the time when I calculated how much interest we had agreed to pay over 40 years. Thankfully, we sold it a few years later. Anyone looking at these products should get the full picture before signing up.”

A potential strategy: using a 40-year mortgage to your advantage

Great Southern Bank most recently joined the 40-year club. In their press release announcing the new product, they say: "it provides several options to help customers save and pay down their loans early. This includes not charging fees for extra or early repayments in its variable rate loans, and offering an offset home loan."

This means a borrower could take out a 40-year home loan but make repayments as if it were a 30-year loan. If paid back in this way, this makes no difference to the total interest paid but provides a fallback option if they struggle with repayments. However, if they reduce their repayments to the 40-year minimum at any point, the total interest cost and loan term will immediately increase.

There are a few benefits to this strategy:

1. Doesn't affect credit score - lowering repayments to the 40-year minimum won't hurt your credit score, unlike options such as a mortgage holiday which can have an impact.
2. Quick and simple - reducing repayments doesn't require approval from your lender. Unlike moving to interest-only or applying for a repayment holiday, all you need to do is stop making extra repayments.
3. Flexible - repayment holidays or interest-only terms are difficult to arrange for just one month. This strategy can be turned on and off as needed, making it useful for handling sudden one-off expenses.

That said, this approach takes discipline. The same flexibility that makes it attractive can also lead to temptation. It may be hard to resist lowering repayments even when it isn't necessary. I know I would be tempted by this. I would struggle to decline an extra $300 to spend on some nice meals out or a weekend away.

Final thoughts

With careful planning, taking out a 40-year mortgage but repaying it at a 30-year rate can be a useful strategy. While it might be tempting to enjoy the lower repayments of a 40-year mortgage, just remember that in our example (using a rate of 5%) taking out a 40-year loan increases the total interest repaid on the loan by 28% and only reduces the monthly repayments by 10%. Proceed with caution.

Finder's Insights Column examines issues affecting the Australian consumer. It appears weekly on finder.com.au.