Interest rates could mount up over an extended loan, Canstar warns. IMAGE stock
Interest rates could mount up over an extended loan, Canstar warns. IMAGE – Shutterstock
  • NAB's ubank is now offering 35-year loan terms on both their refinance and purchase loans.
  • Canstar warns borrowers that smaller repayments now will mean significantly more in interest.

Rising interest rates coupled with already sky-high property prices have seen some lenders increasing their loan terms.

ubank, a subsidiary of NAB, is one lender that is currently offering to extend the maximum loan term for borrowers refinancing, from the typical 30 years to 35 years.

While the longer loan terms could help reduce repayments in the short term, experts are worried that it will significantly increase interest costs to borrowers over the life of the loan.

Canstar’s finance expert, Steve Mickenbecker said longer loan terms could come at a high cost to borrowers.

“Extending the loan term drives down the monthly repayment, but at the cost of still having a loan at an older age than originally anticipated,” Mr Mickenbecker said.

“The borrower will of course be paying a considerably higher amount of interest.”

Short term cuts, long term hikes?

Canstar’s analysis shows a borrower with 25 years remaining on their loan term and $500,000 still owing who refinances from an average variable rate of 5.98% to ubank’s lowest variable rate offer of 4.74% over a new loan term of 35 years could cut their repayments by $774 per month.

However, increasing the loan term by 10 years will add $60,660 to the total interest paid over the course of the loan.

Steve Mickenbecker said borrowers should be cautious about any changes to their loan terms that would increase costs over the long term.

“Ubank in lifting its maximum loan term for refinanced loans from 30 to 35 years has supercharged the saving to $774 per month, which is an enticing prospect for borrowers caught out by the rapid increase in rates,” he said.

“If desperation drives borrowers down this path, they should review their loan a few years on to see if they can accelerate repayments to return to the original schedule.

“Ubank’s interest rate is reasonable but 0.75 percent short of the lowest priced ongoing variable rate loan in the market, which at 3.99 percent will result in a monthly repayment saving of $579, without extending the loan term” he said.

Review your loan down the track

“If desperation drives borrowers down this path, they should review their loan a few years on to see if they can accelerate repayments to return to the original schedule.

“ubank’s interest rate is reasonable but 0.75 percent short of the lowest priced ongoing variable rate loan in the market, which at 3.99 percent will result in a monthly repayment saving of $579, without extending the loan term.”



You May Also Like

Perth apartment popularity on the rise, but new stock is still looking for firmer financial foudations

Costs remain a major hurdle to making more affordable apartments viable to build.

Carly Barrett and Paul Rossen awarded the AIA WA President’s Prize

This year’s award recipients have contributed towards growing public interest and understanding of architecture, as well as mentoring the next generation of architects.

Unlocking empty homes: WA offers incentives to rent out vacant properties

Up to 1,000 new rental properties could be up for grabs, and soon.

2024 Australian Interior Design Awards reveals a record 222 shortlisted projects

Sustainability, collaboration, and timeless natural materials were this year’s biggest trends.