As Great Southern Bank rolls out 40-year mortgage terms, borrowers are advised to weigh the pros and cons
Great Southern Bank has just announced a 40-year variable home loan product tailored to first-home buyers seeking lower monthly repayments.
Per internal research at the customer-owned banking giant, 29% of Gen Zedders and Millennials would consider taking out a 40-year loan, as would 19% of Gen Xers, if it meant lower monthly repayments.
Ask and ye shall receive – Great Southern Bank has made the products available to all Australian citizens aged between 18 and 40, for first-home buyer owner-occupiers only, at a maximum 90% LVR.
Launching the product, Rolf Stromsoe, chief customer officer, said: “For some Australians having lower monthly repayments is the difference between renting and buying their first home.
“This could be their ‘starter home loan’ – exactly what they need to get their foot in the door at the beginnings of their home ownership journey.”
Stromsoe seemed cognizant of the fact that a 40-year home loan is probably not for life, stating: “As their needs evolve and their earnings capacity changes, they may refinance any number of times – but this is the loan that can start it all.”
Indeed, while a 40-year home loan will reduce their monthly repayments, most people would find little reassurance in extending their mortgage obligations into their 70s or even 80s.
But according to Emerald Rowlands-Sierra, general manager at Mortgage Success brokerage in Wollongong, “I think these home loans will be welcomed by first-home buyers”.
“There are times when single applicants may hesitate due to income repayment concerns, so lower repayments will help them feel more comfortable taking that next step,” Rowlands-Sierra said.
While the product is billed as an innovative way to reduce monthly repayments, some basic calculations show just how much more they can cost in the long run.
The hidden and no-so-hidden costs of 40-year home loans
Per Finder analysis, stretching a typical 30-year loan to 40 years reduces monthly repayments by over $300, but results in an additional $316,000 in total interest paid over the life of the loan.
That’s actually underselling the added expense – Finder’s analysis was based off the average home loan size of around $641,000 in September 2024. Fast forward to July 2025, the average home loan size has increased to $678,000, per Australian Bureau of Statistics data.
Essentially, borrowers are trading short-term affordability for much higher overall costs when taking out a 40-year term.
Nonetheless, Finder’s research shows that Great Southern Bank may actually be underestimating the addressable market for 40-year home loans. The comparison site’s survey of 1,013 respondents found that 30% of Australians would consider a 40-year mortgage if it meant lower monthly repayments.
There are other potential downsides to 40-year home loans than just added interest, such as:
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Slower equity build-up: With a longer loan term, a greater proportion of early repayments goes toward interest rather than principal. This means it takes much longer to build equity in your home, leaving you more vulnerable if property values fall or if you need to sell earlier than planned.
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Higher total fees: Some lenders charge ongoing account-keeping or annual fees. Over 40 years, these fees accumulate and can add thousands of dollars to the overall cost of the loan.
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Increased interest rate risk: If your loan is on a variable rate, you are exposed to interest rate fluctuations for a much longer period. Even small rate rises over decades can significantly increase your repayments and total interest costs.
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Reduced financial flexibility: A longer mortgage term can limit your ability to take on other financial commitments, such as saving for retirement, investing, or supporting family members, as you remain in debt for most of your working life.
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Difficulty qualifying for other credit: A large, long-term debt on your credit file may make it harder to qualify for other loans or credit products in the future, as lenders assess your overall debt burden.
Despite these risks, taking out a 40-year loan term could work for certain borrowers, provided they have a solid plan in place to refinance down the line. It is here that expert advice from a broker comes into play.
Very few lenders currently offer 40-year home loans. Alongside Great Southern Bank, RACQ Bank offers 40-year terms for first-home buyers, as does prominent non-bank lender Pepper Money for select borrowers.
However, as the housing crisis drives more first-home buyers to explore innovative borrowing options, an increasing number of lenders are likely to be closely monitoring the handful of test cases currently on the market.
