40-Year vs 30-Year Home Loan: The Extra Interest

Short answer

A 40-year home loan lowers your monthly repayment, but it costs a lot more interest over the life of the loan. On a $600,000 loan at 6% p.a., stretching from 30 years to 40 years cuts the monthly repayment by roughly $296 (about $3,597 down to $3,301), but lifts total interest from around $695,000 to around $985,000. That's roughly $290,000 extra. Whether that trade-off is "worth it" depends entirely on your goals, and is general information, not advice.

How 40-year loans work in Australia

Most Australian home loans run 25 or 30 years. A handful of (mostly non-major) lenders now offer 40-year terms, often aimed at first-home buyers. Great Southern Bank's extended term, for example, targets owner-occupier first-home buyers aged 18–40 at up to 90% LVR. None of the big four currently offer 40 years.

A longer term spreads the same principal over more repayments, so each repayment is smaller. The catch is that interest accrues on your outstanding balance every period, and over 40 years you carry a higher balance for longer, so total interest balloons. Lenders typically pitch the extra 10 years as flexibility, expecting most borrowers to pay extra and clear the loan early.

Two other Australian specifics matter:

• Serviceability buffer. Lenders assess you at roughly 3% above the actual rate (APRA guidance). A 40-year term lowers the assessed repayment, which can nudge borrowing power up slightly, though it doesn't change the buffer itself.
• Age limits. Lenders often want the loan repaid before a borrower's expected retirement, so older applicants may not qualify for a 40-year term.

Worked example: $600,000 at 6% p.a.

Using True Loan's true-periodic, principal-and-interest maths (monthly repayments, rate held constant for the full term):

Loan term	Monthly repayment	Total interest	Total paid
30 years (360 payments)	~$3,597	~$695,000	~$1,295,000
40 years (480 payments)	~$3,301	~$985,000	~$1,585,000
Difference	~$296 / month lower	~$290,000 more	~$290,000 more

You can check the repayment yourself with the standard formula: repayment = P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1), where P = 600,000, r = 0.06/12, and n = 360 or 480. Total interest is simply (repayment × n) − P.

The headline figure: you save about $296 a month, but pay roughly $290,000 extra over the loan's life if you run the full 40 years. (Lender illustrations show similar gaps, around $229,000 on the same loan at a slightly different rate.) A useful middle path many borrowers model is taking the lower 40-year repayment for breathing room, then paying the 30-year amount voluntarily, which can clear the debt on a similar timeline to a 30-year loan.

Model this in True Loan

Open the True Loan calculator and:

1. Set Loan amount to $600,000, Interest rate to 6%, Repayment frequency to monthly, and Repayment type to Principal & Interest.
2. Set Loan term to 30 years, then note the monthly repayment and total interest on the summary.
3. Change Loan term to 40 years and compare.

To see the "lower repayment but pay it like a 30-year loan" strategy, keep the term at 40 years and add the difference (~$296) into the Extra repayment ($/month) input, then watch the payoff time and total interest fall. (The Extra repayment input and the Offset balance input are separate levers; use Extra repayment here.)

For a clean side-by-side, use the compare tool with 30 years in scenario A and 40 years in scenario B. Every scenario is shareable via its URL.

Common questions and mistakes

Is a 40-year loan always more expensive? Over the full term, yes: more interest. But if the lower repayment lets you avoid stress and you channel spare cash into extra repayments or an offset, your actual interest can land much closer to a 30-year loan.

Does a longer term mean a much bigger budget? Only modestly. The smaller assessed repayment lifts borrowing power a little, but the serviceability buffer still applies.

Will I pay it off in exactly 40 years? Rarely. Refinancing, selling, or extra repayments usually shorten it. Note that refinancing can reset your term back to 30+ years.

Mistake: comparing only the monthly repayment. The $296/month saving looks attractive in isolation, and the ~$290,000 extra interest is the part that's easy to miss. Always compare total interest too. See 25 vs 30 years and total interest on a $600k loan over 30 years for related breakdowns, and what an extra amount per month does.

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Figures are estimates for the 2025–26 financial year and depend on your rate, fees and lender. Check official sources such as moneysmart.gov.au and your lender. This is general information, not financial or credit advice.