Published on January 7th, 2013
Experts divided on 40 year mortgage terms
Experts are warning home buyers to fully examine whether it is in their best interest to extend their mortgage to a 40 year term.
Such an agreement is up to 15 years longer than most standard mortgage terms and there are questions over whether it is worth it.
Loan Market spokesperson Paul Smith argued that the interest paid over 40 years would negate any money made from an increase in the value of property over that time.
He commented: "A 40 year mortgage will cost you more in interest and you'll build equity at a slower pace."
But Elders Real Estate state franchise manager Steve Murphy said that his experience suggests home values down the line may be greater than the interest paid on an extended 40 year loan.
He observed: "40 years is a long time and I've been in real estate for over 30 years – I look at values at the time I started to what they are now and the growth is there to be seen.
"There's normally a ten per cent growth per annum and I reckon anything that gives people security, gets them into bricks and mortar, is a good thing."
Mr Smith added that the greatest advantage of an extended plan is that it means lower monthly repayments, however, eligibility is a factor, typically reserved for investors.
He said that these longer mortgage plans could be particularly attractive to investors, who may be keen to create a so-called "buffer" between monthly mortgage payments and their rental yields.
Mr Murphy looked at historical trends, saying that in the '50s and '60s there was next to no growth but in the proceeding years, home values took off. He stipulated that it's very difficult to predict what will happen in the coming four decades.
The Elders expert said prices can also be linked to booms and busts and using the current mining boom as an example, he stipulated that it's very hard to pinpoint when growth will subside.