Are 35 Year Home Loans a Good Idea?
Most home loans in Australia are set over a 30 year term, but some lenders now offer 35 year loan terms.
While this does not suit everyone, it can be a useful option for borrowers who are trying to improve their borrowing capacity or serviceability.
Understanding how loan terms affect repayments can help you decide whether a longer loan term might help you enter the property market or refinance your existing loan.
How a 35 Year Loan Term Can Improve Borrowing Capacity
When a lender assesses a home loan application, they look closely at serviceability, which is essentially your ability to afford the repayments.
The longer the loan term, the lower the minimum monthly repayment
For example, on a $500,000 home loan at 6% interest:
30 year loan: around $2,998 per month
35 year loan: around $2,851 per month
That difference of roughly $147 per month can improve servicing calculations and may allow some applicants to borrow more.
This can be particularly helpful for:
First home buyers entering the market
Clients refinancing who narrowly miss servicing with other lenders
Single income applicants where borrowing capacity can be tighter
It is worth noting that only a limited number of lenders currently offer 35 year loan terms, which is why exploring options through a broker can sometimes uncover solutions that are not widely known.
Paying Extra Can Reduce the Loan Term
Choosing a longer loan term does not mean the loan needs to run for the full 35 years.
If the loan is on a variable interest rate, most lenders allow borrowers to make extra repayments without penalties. This means you can reduce the loan balance faster and effectively shorten the loan term over time.
For example, if a borrower had a $500,000 home loan at 6 percent and paid an extra $100 per week toward the loan, the long term impact can be significant.
Those extra repayments could reduce the loan term by around six to seven years and potentially save well over $150,000 in interest over the life of the loan.
For this reason some borrowers use a longer loan term simply to create flexibility, while planning to make additional repayments whenever their budget allows.
Situations Where a 35 Year Loan Might Help
A longer loan term can be useful in a number of situations.
Some first home buyers use it to improve serviceability so they can enter the property market sooner rather than waiting several more years to increase their income or save a larger deposit.
Borrowers looking to refinance may also benefit if they are just outside a lender’s servicing limits on a standard 30 year loan term.
Single income applicants sometimes find borrowing capacity more restrictive, so spreading the loan over a longer term can help reduce the assessed repayments.
In many cases the longer term is simply used as a starting point, with the intention of paying the loan down faster over time.
Final Thoughts
Loan term is just one of many factors that can influence borrowing capacity and long term affordability. While 35 year loans are not as common as standard 30 year terms, they can provide an additional option for borrowers who are close to qualifying for a loan or looking to manage repayments more comfortably.
If you are exploring home loan options or want to understand how loan structure might affect your borrowing capacity, you can get in touch with the team at Complete Home Loans here.
