If you’ve been told you’re “not quite there yet” on borrowing power, you might have come across lenders now offering 40-year home loan terms. It sounds counterintuitive — a longer loan to solve an affordability problem — but there’s real logic behind it, and a smart exit strategy that can make it work. Let’s walk through how it works, and how it stacks up against simply waiting and saving for a few more years.
How a 40-year term can help you qualify
Every lender in Australia has to assess your ability to repay under APRA’s serviceability buffer — they test you at 3 percentage points above the actual interest rate. So if you’re borrowing at 6.5% p.a., the bank checks whether you could still cover repayments at 9.5% p.a.
Stretching your loan term from 30 to 40 years lowers the assessed monthly repayment, because the same amount is spread over more instalments. For someone sitting just under the servicing line on a 30-year term, that extra 10 years can be the difference between an approval and a rejection. Between continuing to rent and owning a home right now.
It’s worth knowing this isn’t a mainstream product yet. Thus the pricing for a 40 year mortgage will not be a tight pricing, thus this route is undertaken as more of a strategy rather than the penultimate goal.
Think of a 40 year mortgage as the starting line, not the end. Think of it as a strategy to get into property market, to star owning a home as you start your family, to start giving your Mrs her own kitchen – this is just the start.
To give you some perspective on the costs.
What it costs you: on a $600,000 loan, a 40-year term (@7.44%) can add roughly $410,000 in extra interest over the full life of the loan compared to a 30-year term (7.19%). That’s the trade-off for lower repayments today — which is exactly why the exit plan below matters.
The exit: refinance once your LVR drops below 80%
The 40-year term isn’t meant to be forever. It’s a bridge. Once your loan-to-value ratio (LVR) falls below 80% — through a combination of principal repayments and property value growth — you’re in a much stronger position:
- More lenders open up to you. Once you’re outside the 40-year niche segment, the big banks and their sharper rates become available again.
- You can refinance to a standard 25- or 30-year term. Your income has often grown too by this point, so a shorter term and higher repayment is more manageable than it would’ve been at settlement. Just as your career change and improved, so should your mortgage.
- If you started with a low deposit, LMI risk falls away. Sitting under 80% LVR removes lenders mortgage insurance from the equation on your new loan.
- You capture years of price growth and equity build-up you’d have missed by waiting.
In practice, this often means reviewing your position every 12–24 months and refinancing as soon as the numbers line up — not just at some arbitrary point down the track.
40-year loan vs. waiting and saving: the real trade-off
The alternative is the traditional path — keep renting, save a bigger deposit, and buy in a few years once you qualify normally. On paper it looks lower-risk. In practice, it comes down to one question: will your savings rate outpace property price growth?
| Parameters | Buy now with 40-year term, refinance later | Wait and save for a few years |
|---|---|---|
| Entry point | Locked in at today’s price | Exposed to future price growth / uncertainty |
| Interest cost | Higher while on the 40-year term, drops once refinanced | Lower once you do buy, on a normal term |
| Rent paid while waiting | None | Continues the whole time |
| Equity growth | Starts building from day one | Delayed until purchase |
| Flexibility | Refinance when LVR improves | No lock-in, but no upside either |
If Perth (or your local) median prices grow even modestly each year, the gap you’re trying to save can grow faster than your deposit does — meaning “waiting to qualify comfortably” can actually push affordability further away, not closer. On the other hand, if you’re only a year or two off qualifying on a standard 30-year term anyway, saving that bit harder and avoiding the higher-interest years altogether may work out cheaper.
The right answer depends on your income trajectory, how much you’re currently paying in rent, and how the local market is tracking — all of which, are unique to your circumstances. Hence number crunching this before starting down the 40 year mortgage path is definitely worth doing before deciding either way.
The bottom line
A 40-year loan isn’t a discount — it’s a serviceability tool. Used well, with a clear plan to refinance once your LVR improves, it can get you into the market years earlier than saving would, while limiting your time paying the higher long-term interest rate. Used without an exit plan, it just means paying more for longer – and this is definitely NOT the way to go.
If you want to run the numbers on your own situation — comparing what you’d pay buying now on a 40-year term versus waiting and saving — that’s a conversation that we can be having to decide on the next way forward. You could be a step away to having a place – you call home.
Clementfinancebroker 