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The changing shape of home loans

The changing shape of home loans

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Date Published : Thursday, January 10, 2008

A new form of home loan which was introduced to the Australian market last year has surprised the industry with its popularity.

The 40-year mortgage, based on a US idea, has become increasingly popular with homeowners in Australia looking for stability, security and wishing to avoid the debate between fixed and variable rate loans.

First introduced by IMB, the product has now been rolled out by a number of other different lenders, alongside traditional fixed and variable mortgages.

IMB senior manager of marketing Michael Brannon told news.com.au: "Over the longer term you pay more in interest because of the spread of the loan, but it enables people to get into the market sooner than they could have. It also allows people to upgrade earlier because they can borrow a bit more.''

As a result of the introduction of the 40-year mortgage, homeowners have a variety of options to choose from on the market. Figures from lender AFG suggest that only 23.7 per cent of its home loans are now fixed, with many consumers preferring the flexibility of variable rate mortgages.

However, the risks attached to variable rate home loans, which tend to happen when consumers overcapitalise on their loans, mean they are not always the best option.

A recent Cannex report said: "The cost impact of a 40-year mortgage as opposed to a 30-year mortgage is likely to be minimal and, for many, validated by the opportunity to purchase a property that would otherwise be unaffordable.''

The introduction of the new mortgages has changed the face of the market, whether it's for better or worse, consumers will know in 40 years.

Find and apply online for loan deals.
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