Longer loan terms are one option helping buyers get their foot into the property game, and as RACQ Bank’s Head of Lending Product, Operations and Distribution Medina Cicak explains there are several things people need to know and consider about extended loan terms.

What is an extended loan term?

“An extended home loan is essentially the same as other home loans,” Ms Cicak said.

“You borrow an agreed amount and pay it back with interest.

“The difference is most loan terms are a maximum of 30 years. However, if you’re a first home buyer you may be eligible for a loan term up to 40 years.”

What are the benefits of an extended loan term?
Ms Cicak said extending the length of the loan made repayments more affordable for first home buyers, as the debt was structured over a longer period.

“Affordability is very important in the current market, particularly with the rate increases and cost-of-living pressures we’ve had in the past 12 months,” she said.

“This option also increases the borrowing capacity for members, as stretching the loan out over more time means lower monthly repayments.

“An extended loan term could be the difference between buying your own home or still having to rent.”

What to consider when choosing a loan term?

Ms Cicak said buyers must consider the amount of interest they will pay over the life of the loan.

“While your repayments will be smaller, if you choose to repay your loan over an extended period (more than 30 years) you will pay more in the long run,” she said.

“You will also want to consider how close to retirement you will be when you finish paying off the loan, and if that solution fits with your goals.

“However, just because you enter the property market with a longer loan, that doesn’t mean you’re locked into this arrangement. You always have the option to make additional repayments or adjust the loan term length.

“At RACQ Bank, our lenders and brokers complete comparison calculations of interest payable and discuss options of how to pay the loan down sooner, to ensure our members are choosing the right option for their personal circumstances.”

What else should you consider when choosing a loan?

• Interest rate: How much will you pay in interest? How does the interest rate compare to other products in the market?
• Fixed or variable: Do you want the certainty of a rate that stays the same for a set period or a variable interest rate which can go up or down with the market? Do you want to split your loan – locked in half with a fixed rate with the remainder on a variable loan.
• Fees, terms, and conditions: Make sure you check what fees are applicable, as a lower interest rate might have other fees associated it. You may also want to consider what penalties there are for breaking the loan or paying the loan off early.
• Facilities: What features do you need in your loan? Home loans with more options like redraw or offset facilities can come at a higher cost. So weigh up if you will use these features.

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Banking and loan products issued by Members Banking Group Limited ABN 83 087 651 054 AFSL/Australian credit licence 241195 trading as RACQ Bank. Terms, conditions, fees, charges and lending policies apply. This information does not take your personal objectives, circumstances or needs into account. Read the disclosure documents for your selected product or service, including the Financial Services Guide and the Terms and Conditions, before deciding.

Any advice contained in the document is general advice and does not take into account any person's particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs.