Paul Clitheroe's verdict on 40-year mortgages

Not-so-fun fact: The French word for death is 'la mort' - and from this, we get 'mortgage', which quite literally translates to a 'debt until we die'. 

Happily, most of us can be confident of outliving our home loan. But just as we are living longer, our home loans are also stretching out. 

Not so long ago, the standard loan term was 25 years. Increasingly, it has become 30 years. Now it looks as though that timeframe could extend even further. 

1 in 3 Aussies would take out a 40-year loan 

Research by Finder shows one in three Australians would take out a 40-year home loan if it made their repayments more affordable. 

This is no pipedream. Already, a number of mainstream lenders offer 40-year mortgages including G&C Mutual Bank and Australian Mutual Bank.

After decades in the money business, I know that what worked in the past doesn't always work today.  

Online banking is rapidly overtaking in-branch services. Savings account booklets have long been superseded by digital statements. And in just a few years we will struggle to make payments by cheque.

So, it's important to move with the times.  

And maybe, as housing affordability worsens, it is reasonable to expect longer loan terms. The question is, how do the numbers stack up on 40-year loans? 

The additional cost of a 40-year loan 

The basic rule of debt is that the longer you take to clear the slate, the more you pay in overall interest. 

Assuming today's average mortgage of about $665,978, over a 30-year term, the monthly repayments will be around $4,427, with the long term interest bill totalling about $927,000.  

Extend that loan term to 40 years, and the repayments drop to $4,134 per month. The total interest cost, however, rises to more than $1.3 million. 

What to weigh up 

So-called 'mega-mortgages' with terms spanning 40 years have attracted media attention lately.  

Yes, they can come with a supersized interest bill, and yes, a loan term of four decades - about half the Aussie life expectancy - is eye-popping for those of us who cut our teeth on 25-year loans.   

But as I noted, what worked yesterday doesn't always work today. 

The thing is, I don't think most Australians can save fast enough to keep pace with rising property prices.  

Frankly, if I can afford the repayments, and still have a reasonable safety buffer, I'd take a 100-year mortgage if it allowed me to get into the market.  

I really believe that whether a loan is for 20, 40 or 100 years is irrelevant (plenty of investors pay interest-only, making it a forever loan).  

The reality is that life changes, inflation destroys the real value of debt. So, do whatever you need to do to get into the market - just don't over-borrow, and be sure to buy in an area with population growth as this drives price growth. 

And as with any home loan, regardless of the term, it always makes sense to have a plan to pay it off sooner. Pay a bit extra when you can - especially as your income rises. As you build equity in the place, consider refinancing to a shorter-term loan, and don't be afraid to add in lump sums like part, or all, of an annual tax refund. Even small steps can lead to big savings in long term interest.