Some strapped mortgage borrowers prolong repayment period to ease the burden of rising interest rates. This stretches out their repayment period, lowering the monthly amount due but significantly increasing the total interest paid over the life of the loan. While it provides short-term relief, experts warn it can be costly in the long run.
Finder’s Insights on Prolonged Repayment Periods
Recent research from comparison site Finder reveals a growing trend among Australian mortgage holders: extending loan terms to reduce monthly repayments. While this strategy may offer short-term relief, it can significantly increase the total cost of a mortgage over time.
According to Finder’s survey of 1,012 respondents—292 of whom held mortgages—13% had extended their home loan terms in the past year. This equates to approximately 429,000 borrowers who have opted to stretch their repayment periods in response to rising interest rates.
The Cost of Lower Monthly Repayments
Since interest rates began climbing in April 2022, annual repayments for households with the average loan size have surged by over $21,000. Finder’s data shows that 7% of mortgage holders (around 231,000 people) extended their loan terms by less than five years, while another 6% added five years or more. These extensions could result in thousands of dollars in additional interest over the life of the loan.
Finder’s Consumer Sentiment Tracker also highlights growing financial strain. In June, 34% of Australians reported difficulty making home loan payments—up from 26% in the same month last year.
Expert Commentary: Richard Whitten’s Perspective
Home loan expert Richard Whitten of Finder warns that while extending a loan term may ease monthly pressure, it comes at a steep long-term cost. “Extending the length of your home loan will likely cost you a fortune in the long run, even though it will lower your monthly repayments in the short term,” he said.
Whitten emphasized that many households now have significantly less disposable income compared to previous years. In their efforts to reduce expenses, some borrowers may be compromising their future financial stability.
Even small extensions can have a big impact. Whitten explained that because lenders calculate interest daily based on the outstanding balance, prolonging the loan term increases the total interest paid. For example, a borrower with the average Australian loan size of $625,050 would pay approximately $722,602 in interest over 30 years at a competitive variable rate of 5.99%. Extending that term to 35 years could add an extra $147,457 in interest.
Strategies to Offset the Cost
For borrowers feeling stretched, Whitten suggests making additional repayments when possible. “To offset the fees associated with extending your loan, think about adding more money to your house loan,” he advised. This approach can help reduce the overall interest burden.
He also pointed out that many variable-rate mortgages include redraw facilities. These allow homeowners to make extra payments while retaining access to funds in case of emergency—a flexible option for those looking to manage their finances more proactively.
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