Landlords turn to 40-year loans as Aussies warned over 'scary' mortgage trend

August 10, 2026 - 05:24

Australian property investors are increasingly turning to 40-year home loans to get back into the market, but experts are warning the move is a risky band-aid that could backfire badly.

The strategy lets landlords reduce their monthly repayments, which frees up borrowing capacity at a time when high interest rates and strict lending rules have squeezed many out. But critics call the trend "ridiculous" and say it only delays the pain, pushing debt well into retirement age and adding tens of thousands of dollars in extra interest.

One mortgage broker said the demand for extended loan terms has jumped sharply over the past year, especially among investors who want to keep buying despite higher costs. By stretching the loan from the standard 30 years to 40, a borrower can cut repayments by roughly 15 to 20 percent, which can be enough to satisfy a lender's serviceability test.

However, the long-term cost is severe. On a 600,000 dollar loan at around 6 percent interest, moving from 30 to 40 years adds more than 200,000 dollars in total interest. And because the loan takes longer to pay down, the borrower builds equity much slower, leaving them vulnerable if property prices stall or fall.

Financial advisers also warn that older investors may still be paying off debt well past retirement, forcing them to rely on rental income or sell at a bad time. One analyst called the trend a sign of "desperation" in a market where affordability has become a major hurdle.

While some lenders now offer 40-year terms more openly, others quietly allow longer periods through interest-only setups or by extending the loan term on paper. Regulators have flagged concerns, but so far no formal ban has been introduced.

For now, the message from experts is clear: stretching the loan term may get you into a property today, but it could leave you trapped tomorrow.