There is a new number being quietly slid across desks in mortgage broker meetings around Australia, and it is dividing investors more sharply than anything else this year.

The number is 40. As in, a forty-year mortgage.

Eleven lenders in Australia now offer loan terms of up to 40 years. None of them are the big four. And in the last fortnight one of them launched a 40-year product built specifically for property investors, with up to ten years of interest-only repayments that don’t get reassessed along the way. The pitch is holding power: with negative gearing and the capital gains tax discount being wound back for buyers of established property from 1 July 2027, the industry’s read is that the question has shifted from “is this a good investment” to “can I afford to keep it”.

That is a genuinely reasonable question. But there’s a second number attached to it, and it’s the one that makes people go quiet.

The situation

A 38-year-old tradesman from Perth’s northern suburbs — we’ll call him Dean — came to us with exactly this decision on the table.

Dean owns his own home and one investment property. He wants a second, and the numbers on a 30-year term don’t quite get him there. His broker showed him a longer alternative: extend the term to 40 years, and the assessed repayment drops enough that the loan works. On a $750,000 loan at 5.76 per cent, that’s the difference between $4,381 a month and $4,001 a month. Nearly $380 back in his pocket, every month, for four decades.

Then Dean scrolled down to the total interest column.

Over 30 years, he’d pay $827,362 in interest. Over 40 years, at the same rate, he’d pay $1,170,876.

The extra ten years costs him $343,513.

“That’s more than the deposit on another house,” he said. “Is the bank helping me, or is it helping itself?”

We get asked a version of this every week now. Here’s the answer we gave him.

The question

Is a 40-year loan term a smart way to hold property through the tax changes — or an expensive way to buy something you can’t actually afford?

The answer

Both. It depends entirely on one thing, and it isn’t the loan.

First, understand what you’re actually buying. You are not buying a cheaper loan. You are buying time — roughly $380 a month of breathing room, at a price of $343,513. Whether that’s the best deal you’ve ever done or the worst depends completely on what the asset does with the time you just bought it. Ten extra years of interest on an asset that grows and rents strongly is a rounding error against the compounding. Ten extra years of interest on an asset that flatlines is simply a very slow, very polite loss.

Second, know the traps, because there are three real ones.

The serviceability calculation on these investor products is generally still assessed on a 30-year principal-and-interest basis, even when the term is 40 — so the longer term buys you cashflow, not unlimited borrowing capacity. Lenders are not handing out free money here, and with investor lending already tightening sharply, that assessment is only getting more conservative.

Second, the interest-only period ends. Six to ten years of interest-only feels wonderful and then reverts to principal and interest on a shorter remaining term, which is where the repayment shock lands. If your plan doesn’t survive that reversion date on paper today, you don’t have a plan, you have a countdown.

Third, and least discussed: stretching amortisation slows equity build-up. More of every early repayment is interest, so your net equity position at sale is lower than a 30-year borrower’s would be at the same point. For an investor whose entire strategy relies on recycling equity into the next purchase, that is not a minor footnote — it’s the engine running slower.

Add to that the obvious: fewer lenders in this space means less competitive pricing, and a 40-year commitment taken at 45 means mortgage debt in your seventies, which most lenders will rightly ask you to explain before they’ll write it.

Third — and this is the part that actually decides the outcome — the loan term is the wrong variable to be optimising.

Around 2.3 million Australians own an investment property, and roughly 70 per cent of them own exactly one. Investors wrote $41.5 billion in new dwelling loans in the March quarter alone. Almost all of that energy goes into the finance structure: rate, term, offset, interest-only. Very little of it goes into the thing that determines whether the structure ever gets tested.

Because a 40-year term is a bet on holding. And holding only pays if the asset appreciates and rents while you hold it — and with rents at record levels in every capital, the income side of that bet is currently the strongest it has been in a generation. But that is not a suburb-level question, and it’s certainly not a city-level one. It’s a street-level question.

Our research at Ripehouse Advisory is built at street and suburb level rather than city level, and the gap that exposes is confronting. Our R-Score ranks a location’s fundamentals — supply versus demand, days on market, vacancy rate, stock on market, tenant demand depth, owner-occupier ratio and development activity — into a percentile score, and then we map it street by street as a heatmap. Inside a single mid-ring suburb, on the same median, in the same school catchment, we routinely find one street sitting in the top decile for tenant demand and days on market while a street a few hundred metres away sits in the bottom quartile — dragged down by through-traffic, unit-stock concentration, a flood overlay, or a development pipeline about to compete directly with it for the same tenant.

A buyer reading only the suburb average that is hiding two different markets treats those two purchases as identical. They are not. And the moment you sign a 40-year term, that difference stops being an academic point and becomes the entire investment case — because you have just committed to holding for four decades and paid $343,513 for the privilege. On the top-decile street, the rent growth and capital growth over that hold comfortably swallow the extra interest and then some. On the bottom-quartile street, you’ve financed a longer stay in a worse position, and the tax changes will have removed the refund that used to paper over it.

So what should a Dean do?

  • If you’re using a 40-year term to hold a genuinely strong asset through a tight patch: legitimate strategy. Take the cashflow, then attack it — the term is a maximum, not an obligation. Pay extra when you can, use the offset, and refinance to a shorter term when your position improves. Most of the $343,513 evaporates if you don’t actually take 40 years.
  • If you’re using a 40-year term to get a loan approved you’d otherwise fail: stop and look at why you fail. If the only way the deal works is by stretching the debt past your working life, the deal is telling you something. Check whether the constraint is your borrowing capacity or the asset’s quality before you solve it with time.
  • If you’re buying now: run the street-level data before you run the loan comparison. Vacancy, days on market and genuine supply constraint on that specific street will move your 40-year outcome by far more than 30 basis points on the rate ever will.

What it means for you

The arrival of 40-year terms is being reported as a warning sign, and in one sense it is — it’s a tacit admission that prices have outrun incomes. But for investors it’s something more useful than that: it’s a tool that has been mispriced by the people reaching for it. Used as a temporary cashflow bridge on a well-chosen asset, it’s cheap. Used as a permanent workaround for an asset that never stacked up, it’s the most expensive financial decision most people will ever make.

Which is the same lesson every one of these policy and rate shake-ups keeps teaching, just wearing a new outfit. The finance structure doesn’t create the return. It only determines whether you’re still holding when the return arrives.

And that’s why we remain firmly constructive on Australian residential property, even in a market printing negative monthly numbers. Tax settings change. Rate cycles turn. Loan terms stretch. What has not changed in any cycle we’ve measured is that a property on the right street — in a suburb with real supply constraint and real tenant demand — has outperformed its own suburb average through every one of these shake-ups, while the wrong street has underperformed it through every boom. The investors who win the next decade won’t be the ones who found the cleverest loan structure. They’ll be the ones who bought the right 400 metres of road and then had the holding power to stay.

Right asset, right street, right data. Get those three right and a 40-year term is optional. Get them wrong and no loan term is long enough.

This article is general information only and does not take into account your personal circumstances, financial situation or objectives. It is not financial, credit, tax or legal advice. Consider seeking advice from a licensed professional before making any investment or borrowing decision.