Mortgage For Life

YOUNG home buyers struggling to break into the property market are for the first time being offered mortgages that could last a lifetime.

Row of houses in Sydney, Australia. Several mortgages in this lot.

GE Money has become the first Australian lender to offer 40-year mortgages and at least two leading banks have started testing consumer reaction to 50-year loans.

With the Reserve Bank of Australia expected this week to announce the second interest rate rise in three months, other lenders are expected to follow suit with loans that could last the average person's working life.

Westpac confirmed it would consider introducing 40- and 50-year mortgages.

The Commonwealth Bank said: "If our customers are interested in a term of that length, of course we would look at it."

In a 50-year mortgage, a couple borrowing $400,000, at an interest rate of 7.25 per cent, will end up paying back $1.29 million.

A consumer group backed the lengthy mortgages, describing them as a "welcome alternative" for borrowers.

Extended mortgages were first offered two years ago in the United States, where they were aimed at average and low-income earners. They are also available in Europe and Britain, where borrowers can have up to 45-year loans.

Long-term mortgages reduce monthly repayments by hundreds of dollars but lengthen the standard loan by 10 to 20 years, adding hundreds of thousands of dollars in interest payments if the loan runs its course.

With the average first-home buyer now in their late 20s or early 30s, this could see people paying off the family home in their 70s, even 80s.

Critics said similar schemes have "attracted flack" in the US, where they are known as "trailer trash loans". In Britain, they have been labelled debt traps for the poor.

GE Money originally offered a 40-year loan to business clients and investors, but it is now available to all home buyers.

"There is no restriction," said Evan Dwyer, GE's managing director of small to medium enterprises.

"We will allow a regulated loan to go to 40 years if it is full-income verified."

Australian Consumers' Association spokesperson Indira Naidoo said the new loans are a welcome alternative, provided borrowers are fully informed and aware that hefty exit fees may apply if they want to end the contract early.

"We have had a few organisations approaching us to find out what our reaction would be to 50-year loans," Ms Naidoo said.

"It is the way some institutions are going to go because of the situation overseas, high property prices, and the difficulty home buyers face trying to get into the market."

Mortgage broker Acceptance Finance - which has sold the GE loan - said most people who are attracted to longer loans pay them out or refinance long before the expiry date.

"The main benefit of a 40-year term is that the applicant can minimise their repayment during the initial years, when in most cases cash flow is tightest," said Acceptance Finance director Daniel di Conza.

Source: The Sun-Herald

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