40-Year Home Loans Are Going Mainstream. What They Fix, and What They Cost
Updated: Oct 15
A few years ago a 40-year home loan was a curiosity. Now it's a growing product category. In early October another non-bank lender launched one, only days after the Reserve Bank's September rate rise squeezed borrowing power again. If you're stretching to get into the market, you'll probably come across one. Here's what it really does.
Who offers them
A handful of lenders now write 40-year terms, mostly non-banks, smaller banks and mutuals. Some aim them at first home buyers, others at investors. None of the big four banks offers a 40-year term at the time of writing. The products differ in important ways, including age limits, maximum LVR, whether they're for owner-occupiers or investors, and how the lender assesses what you can afford.
What a longer term does to your repayments
Stretching a loan from 30 to 40 years lowers the minimum monthly repayment, because you're spreading the same debt over ten more years. But the saving is smaller than most people expect, and the cost is much bigger.
Here's a $600,000 loan at an illustrative 6.5% interest rate, on principal and interest repayments:
Loan term | Monthly repayment | Total interest over the life of the loan |
25 years | $4,051 | $615,373 |
30 years | $3,792 | $765,267 |
35 years | $3,625 | $922,469 |
40 years | $3,513 | $1,086,116 |
Illustrative only, using the same 6.5% rate for every term. Many 40-year products carry a higher rate than their 30-year equivalent, which would widen the gap.
Moving from 30 to 40 years saves about $279 a month, and costs about $321,000 more in interest.
That's the headline trade-off. Lower repayments today, paid for with ten more years of interest.
The part most people miss: equity builds slowly
In the early years of any loan, most of each repayment goes on interest. Stretch the term and that effect gets stronger. On the same $600,000 loan, after 10 years you'd still owe about $508,700 on a 30-year term, but about $555,800 on a 40-year term. That's roughly $47,000 less paid off.
Why does that matter? Because equity is what gives you options later: refinancing to a better deal, upgrading, or using equity to invest. A slower start means those options arrive later.
Does a 40-year loan let you borrow more?
Sometimes, but not always, and this is where the products really differ. Some lenders still assess you as if the loan were 30 years, so your borrowing power doesn't change at all; only your minimum repayment does. Others assess over a longer period, which can lift borrowing power a little. It depends entirely on the lender's policy, so it's worth checking before you assume a longer term will close a gap.
Worth knowing
Even where a longer term lifts how much you can borrow, the lender still has to be satisfied you can afford the loan with a buffer on top. A 40-year term changes the maths, not the responsible lending rules.
When a 40-year term can make sense
Used deliberately, a longer term can be a useful tool rather than a trap:
As a safety net, not a plan. Take the longer term for the lower minimum repayment, but pay what a 30-year loan would require. You get breathing room for a tough month, parental leave or a rate rise, without committing to 40 years of interest.
For a known, temporary squeeze. If your income is about to rise, a lower minimum can bridge the gap, with a plan to step repayments up later.
For some investors. Where cashflow matters more than paying the loan down quickly, a longer term can help, as part of advice that includes your accountant.
If you pay the 30-year repayment on a 40-year loan at the same rate, you'll still clear it in about 30 years. The difference is that you've kept the option to drop back if life gets in the way.
When it probably doesn't
When the longer term is the only way the numbers work, and there's no plan to increase repayments. That can leave you exposed if rates rise further.
When the 40-year product carries a noticeably higher rate than a comparable 30-year loan.
When you're older. Some lenders cap the full 40-year term by age, and you'll want the loan cleared before retirement.
The bottom line
A 40-year loan doesn't make a home cheaper. It makes the minimum repayment smaller. Used as a buffer with a clear plan to pay more, it can help. Used as the only way to stretch into a bigger loan, it usually costs a lot.
Weighing up a longer loan term?
I'll compare a 40-year term against your other options, including a 30-year loan, a smaller purchase price or a different lender, so you can see the real cost before you decide.
Sources: Broker News, Granite launches 40-year home loan and holds back on rate rise (October 2026); MPA, Another lender jumps on the 40-year mortgages trend (October 2026); MPA, AMP Bank latest entrant to 40-year mortgage market (July 2026); Repayment and interest figures calculated by Finance 365
This article is general information only and does not take into account your objectives, financial situation or needs. Scheme rules, lender policies and eligibility criteria change, so confirm the current position before acting. Lending criteria, fees and charges apply.
Ian Freeman, Finance 365. Credit Representative Number 439731 of Australian Credit Licence 384704.