A 40 Year Home Loan Does Not Let You Borrow More

Somebody is going to tell you a 40 year home loan means a bigger house. They are wrong, and the reason sits in one line of the product terms that nobody reads out loud.

A 40 year loan term went live in Australia on 6 October 2026. Broker Daily carried it in its lender policy round up for the week to 1 October. Up to 95 per cent of what the property is worth, paid back over four decades, for owner occupiers up to the age of 45.

Here is the line that matters. Servicing on it is assessed over a maximum of 35 years.

Servicing is the test a lender runs before it lends you anything. It is not a check of what your repayment will be. It is a check of whether you could still pay if things got worse.

So the lender runs that sum over 35 years either way. Thirty year loan, 35 years. Forty year loan, still 35 years. The fortieth year adds nothing at all to the number they are willing to lend you.

Your borrowing capacity does not move. Not by a dollar.

So what does the extra decade actually do?

It lowers the minimum repayment. That is the whole product. Ten more years of interest on the same debt, traded for a smaller amount leaving your account each month.

Run the numbers on it and the trade gets very easy to see. Take a $600,000 loan at 6 per cent, which is an illustrative rate and not one on offer anywhere. Over 30 years the repayment is roughly $3,597 a month. Over 40 years it is roughly $3,301.

Three hundred bucks a month.

Now look at the other end. Over 30 years you pay about $695,000 in interest. Over 40 years you pay about $985,000.

Two hundred and ninety grand. For three hundred a month.

That is arithmetic, not an opinion, and it is the same arithmetic on any loan size. Stretch the term, the monthly number falls a bit and the total number climbs a lot. The longer you carry a debt the more of it is interest.

Which does not make it a bad product. It makes it a specific one.

There are people this suits properly. Income that lands in lumps rather than fortnightly. A business owner who needs a low floor to land on in a bad quarter. A couple with a few years where the cashflow is genuinely needed somewhere else, school fees or a renovation or one of them going part time, with a real plan to pay well above the minimum once that stretch is over.

For those people the lower minimum is not more debt. It is a safety valve they intend to stop using.

The question to ask is not what the longer term does to your repayment. You can already see that. The question is what happens to the difference.

Paid straight back into the loan, that extra decade never gets used. The loan behaves like a 30 year loan with an emergency setting. Spent, it gets used in full, with interest, and the four decades are real.

Same product. Two completely different outcomes, and the only variable is you.

There is a second thing worth knowing about long terms generally, and it has nothing to do with this one product. A lender is lending against your working life as much as against the house. That is why this one stops at age 45 for owner occupiers. Sign a 40 year term at 44 and the last repayment lands at 84, which means the file has to explain how it gets paid once you stop working.

That explanation is called an exit strategy and most lenders want one in writing. Downsizing, superannuation, selling an investment. It is not a formality and a vague answer is a reason for a decline.

It is also worth being clear about what has actually moved your borrowing power this year, because it is not loan terms.

The Reserve Bank lifted the cash rate by 25 basis points to 4.60 per cent on 29 September 2026, the fourth rise of the year. APRA, the banking regulator, requires lenders to test you at least 3 percentage points above the rate you would actually pay, and it confirmed on 28 May 2026 that the buffer stays at 3 percentage points.

Rates go up, the test rate goes up with them, and the number a lender will lend comes down. Your income did not change and your budget did.

A 40 year term does not claw any of that back. It is a cashflow tool wearing a capacity costume, and the only reason it gets sold as capacity is that the monthly number is the number people look at.

One more thing. This is one lender's product, not a change across the market. It will suit a small number of files and most lending will keep being assessed over 30 years as usual. A longer term is also not the only way to get a repayment down. A lower rate, a different structure, offset against the loan, or simply a different lender reading your income more generously can all land in the same place without adding a decade of interest.

If you have been told a 40 year term lets you buy more house, go back and ask over how many years they assessed your servicing. If the answer is 35, you already know what the fortieth year is for.

And if the monthly repayment is the thing keeping you out of the market right now, that is worth a proper conversation about the whole file, not just the term. Which part of the repayment is actually the problem, the rate or the size of the loan?