How long should my home loan be?

Yes, a longer loan term means lower repayments each month. But, the more interest you'll end up paying over the life of your loan. A few years can make a big difference in the overall cost of your home loan.

Length of mortgage comparison

Home loans can be 10, 15, 25, 30 or even 40 year loan terms. A 30 year loan term is the standard, with 40 year loan terms only offered by a very small number of lenders.

Taking out a 30 year loan term instead of a 25 year loan term mean you will have lower monthly repayments, but you'll end up paying more interest over the life of the loan. How much more? Let's see...

25 year home loan vs 30 year home loan - 6%

^{* based on monthly, principal and interest repayments}

In this example, the choice of a 25 year home loan length costs the borrower an extra $240 per month compared with a 30 year loan. That adds $72,000 to the cost over the full loan period.

But it also saves the borrower a tonne long-term. You'll pay less in interest, not to mention the fact that it buys you 5 years of being completely mortgage free, as you'll own your home outright 5 years sooner. So in this example, it effectively buys you 60 free months.

Bottom line: a 25-year loan term costs you $72,000 more in monthly repayments, but saves you $135k in interest and saved payments. We have a clear winner!

• • • Even if you have a 30 year loan term, with most variable loans you can make additional repayments each month or lump sum payments here and there, which will decrease your loan term. Just check there's no fees for doing this.

• Loans repayment calculator

Expert insight: Can you ask for a shorter loan term?

"Lenders usually offer the option to choose a loan term when refinancing. If you prefer to maintain your existing loan term rather than reset it to 30 years, you can request this during the application process to avoid extending the overall length of your mortgage."

Brett Sutton

Mortgage broker, Two Red Shoes

Refinancing mistake: refinancing to a lower interest rate and not adjusting your loan length

One mistake to avoid is refinancing to a cheaper interest rate and taking out a new 30 year term. This can cancel out your refinancing savings, as you can see below.

Assuming you didn't refinance again and you stayed on the same interest rate, you'd end up paying $1,940,463 over the life of the loan. That's $361,211 more than you would have paid on the original loan.

Using an offset account to cut down interest

If you're thinking of taking out a longer loan term to cut down on the monthly repayments, but (understandably) don't love the idea of paying so much more over the life of the loan, you can make use of an offset account.

By adding enough money into your offset account, you'll keep your monthly repayments the same but the payment will go directly to your principal loan amount. This means you could end up repaying your loan back faster than the loan term, thereby cutting down the overall interest paid.

• Mortgage offset calculator

Finder survey: How many Australians understand how offset accounts work?

Frequently asked questions about home loan terms

• What is the best length of a mortgage?

  There's no definitive "best" length, because it really depends on your own goals, income and budget. The shorter your loan term, the sooner you'll own your home outright, which is a goal for most people. The standard loan term in Australia is 30 years, so anything less than this is considered shorter.

• How do I choose the length of a home loan?

  Most lenders default to a 30 year loan term, so that's usually the best place to start. Remember, you can usually make extra repayments on a variable loan without any fees or penalties, so you could start with a 30-year loan term and make extra payments when you wish. This gives you flexibility to make bigger repayments and own your home sooner, with a lower monthly obligation for those times when costs in other areas are eating into your budget.

• Is a longer home loan better?

  A longer home loan can be considered as 'better' as it saves you money on your monthly repayments. However, while your monthly repayments will be lower, longer term you'll pay much more, as our example above demonstrates.

Written by

Sarah Megginson

Head of editorial

As an authority on all things personal finance, Sarah Megginson is passionate about helping you save money and make money. She is an editor and money expert with 20 years’ experience and an extensive background in property and finance journalism. Sarah holds ASIC RG146-compliant Tier 1 Generic Knowledge certification, and she's a regular media commentator, appearing weekly on TV (Sunrise, Channel 7 news, Nine news), radio (KIIS FM, Triple M, 3AW, 2GB, 6PR) and in digital and print media. See full bio

Sarah's expertise

Sarah has written 192 Finder guides across topics including:

• Home loans
• Personal finance
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• Managing the cost of living