Speculation is growing that homeloans with terms of up to 50 years could become available in New Zealand. Long term mortgages are being promoted in Australia as a way for cash-strapped borrowers to cope with rising property prices and lenders are watching the market here to gauge demand
The potential attraction is that monthly repayments can become affordable for borrowers whose finances are stretched. The disadvantage is that they can add tens of thousands of dollars to the total cost of house purchase over the long term.
GE Money has offered 40 year loans in Australia for 4 years. The lender, which has bought the mortgage assets of New Zealand’s Superbank, says it will consider the potential in New Zealand although it says demand in Australia has not been substantial; it has only sold about 800 loans.
"We have had more interest from investors who are looking at minimum outgoings and focusing on capital appreciation,” says GE spokesman Keith Ritchie.
"We encourage people to pay off their mortgage as quickly as they can. In Australia the average life of a mortgage is less than 7 years.
"Even though someone may take a forty year loan, we would not expect too many people paying the loan over the full 40 years because the relative dollar value is likely to be insignificant in 40 year's time. In 1966 you could buy a house in Melbourne for around $10,000, yet today you'd probably need around $400,000 plus. If someone had taken out the loan back then, the relative dollar terms would mean it would be difficult to still have the loan today unless they were paying only a few dollars a month."
Mortgages with 30 year terms are already available in New Zealand.
Most new loans with non-bank lender General Finance are now on 30 year terms according to James Lockie, a director of the company. Lockie says there is only a small difference between monthly payments on a 30 year loan and a 25 year term and customers are encouraged to look at increasing payments or paying off lump sums as soon as they can afford to.
Jeff Matthews, senior financial adviser at Spicers Wealth Management is wary about long term mortgages. In general, debt should be paid off as quickly as possible.
"Conceptually it is fine provided you are a disciplined person."
