The increasing rise of the 40 year mortgage appears to becoming more common place according to an article in news.com.au.
While only a minority of financial providers offer a 40 year mortgage option it is increasingly becoming more prevalent that people use this option to get a step on the housing ladder. Predominately used by first home buyers the option of taking a forty year loan decreases the total repayments to be made each month thereby making the loan “appear” more serviceable. While repayments are lower the amount of interest payable over the term of the loan is thousands more than what would be the case for a more standard thirty year mortgage.
Increasing the term of the loan however is a time honoured strategy of increasing your borrowing power. Lowering your payments allows a greater amount to be borrowed from your financial institution. Mortgages in current times rarely extend to their contracted end. Statistics demonstrate that the average life of a mortgage is only seven years. Many people during that time sell or remortgage their property.
Care needs to be taken by borrowers ensuring they understand the implications of a 40 year mortgage, and importantly the implications of the greater amount of interest they are paying over the term of the loan.
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