The hidden cost of extending your mortgage term to 30 years

The federal government has tried (via 2009 legislation and later instructions to banks from APRA, the Australian Prudential Regulation Authority) to ensure that mortgage borrowers will be able to service their loan and cope with any future interest rate rises. Despite this, many Australian homeowners are struggling financially as a result of inflation’s impact on the cost of living, geopolitical influences on fuel costs, and the Reserve Bank’s interest rate increases.

When household budgets are under such pressure, the prospect of a lower monthly mortgage repayment can be very appealing, so it’s no surprise that a 2025 survey revealed that 47% of homeowners who refinance their mortgage reset their loan term to 30 years. However, there are several reasons why this can be a financially unwise decision.

You’ll pay a lot more interest

Extending your mortgage term to 30 years means spreading the debt over a longer period, reducing your monthly repayments. While this can improve your cash flow, you will remain in debt for longer and pay interest for many more years.

For example, on a $1 million loan over 25 years at 6.25%, you would pay a total of $979,000 in interest. The same loan spread over 30 years would incur interest payments of more than $1,216,000.

Back to square one with interest to principal ratio

In the early years of a mortgage, a far greater proportion of your monthly repayments goes towards interest rather than reducing the loan principal. When you go back to the start of a 30-year loan, more of each repayment is consumed by interest rather than building equity.

You may retire with an unpaid mortgage

Many people will find that their monthly income will reduce once they retire, when a pension may be their main source of income. Extending your mortgage to 30 years could mean that you still have to meet mortgage repayments after you retire, seriously challenging your budget and cramping your lifestyle.

Reduced home equity

When you pay off your mortgage more slowly, you also build equity in your home more slowly. This may limit your ability to move up the property ladder, or to borrow for renovations. Having substantial home equity also increases your financial resilience in case property prices stagnate or decline.

Lost investment opportunities

The extra mortgage interest you would be paying could have been directed more usefully elsewhere, such as investing for long-term wealth creation, making additional tax-deductible superannuation contributions, or building an emergency fund.

Consider alternative ways to restructure your mortgage payments

Before you extend your mortgage term and commit to an extra interest liability and lost financial opportunities, think about the many other ways you could reduce your repayment burden.

• Firstly, check whether an offset account is available to you, to allow you to use temporarily surplus cash to reduce your interest charges. If you already have an offset account, are you making full use of it by having your income paid into it before you start to pay your bills?
• Secondly, you could refinance your loan at a lower interest rate, either by contacting your existing lender or by shopping around for a better deal.
• Or, consider switching to interest-only repayments for a while, after carefully considering the risks of larger total interest costs, slower equity growth and possibly a significant jump in repayments when the interest-only period ends.
• Conducting a review of your household and discretionary spending could help you to reduce costs and lower the stress of mortgage repayments.
• If, after considering all your options, you still decide to go ahead and extend the mortgage term, you may still be able to maintain your original repayment amount if your circumstances improve, thus mitigating the negative effects of the prolonged term.

Discuss your options with your financial adviser

In some circumstances, extending your loan term could be the right decision, but there are many potential negative consequences to consider. It would be wise to consult your financial adviser about the best option for your situation.