In response to declining homeownership rates, Australian lenders have started offering 40-year home loans, a trend that mirrors practices in Europe with extended mortgage terms.

Currently, six lenders in Australia, including G&C Mutual Bank and RACQ, are providing these 40-year loans, while ubank offers options for 35-year terms.

Amid a cost-of-living crisis and soaring property prices, many buyers are turning to longer loan terms to manage their monthly expenses, despite the potential long-term financial repercussions.

Experts caution that while extending loan terms may reduce monthly payments, it can result in over $240,000 more in interest paid over the life of the loan.

A Finder survey revealed that 30% of respondents would consider a 40-year mortgage to lower their monthly payments, even with an awareness of the increased total interest costs.

For example, a borrower taking out $600,000 at a 5.99% interest rate could lower their monthly payments by $296 with a 40-year loan, but would incur significantly higher interest costs.

Graham Cooke, who has experience with a 40-year mortgage, advises against such loans due to the high cumulative interest expenses they entail.

While extending the loan term can theoretically allow for larger borrowing amounts, the actual increase depends on the lender's policies and risk appetite.

The trend indicates that Australian borrowers frequently refinance throughout their mortgage lives to secure better rates, which may reduce the necessity for longer loan terms.

Older buyers face additional challenges, as lenders often require stronger exit strategies for longer loan terms, with some limiting these options to applicants under 40.

Alan Hemmings of Home Loan Experts notes that many buyers are actively seeking longer loan terms to manage their monthly repayments in light of high property prices.

Experts emphasize that while longer loan terms may provide short-term relief, they can lead to significant additional costs that could outweigh any immediate benefits.