Thirty years is the default in Australia, not because it suits everyone but because it produces the lowest required repayment and therefore the largest borrowing capacity.
Choosing a shorter term is one of the highest-impact decisions available at application — and there is a way to get most of the upside without committing to it.
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The trade-off in numbers
On a $600,000 loan at 6.5%, repaid monthly:
- 30-year term: repayment about $3,792 a month, total interest about $765,267.
- 25-year term: repayment about $4,051 a month, total interest about $615,373.
- The 25-year term costs about $259 more each month and saves roughly $149,894 in interest.
Figures are illustrative for one loan at a constant rate. Enter your own numbers in the calculator to see your position.
Why the saving is so large
The extra $259 a month adds up to around $77,700 over 25 years, yet saves close to $150,000 in interest — almost twice what you put in.
That is because every additional dollar of principal repaid early removes interest for all remaining years. Shortening the term front-loads principal repayment across the whole schedule, not just at the end.
The case against a shorter term
A shorter term raises your minimum obligation permanently. If your circumstances change — reduced income, a period out of work, a rate rise on top of the higher repayment — that higher figure is contractual, not optional.
It also reduces your borrowing capacity. Lenders assess serviceability against the required repayment, so a 25-year term on the same income means qualifying for a smaller loan.
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The third option most people miss
Take the 30-year term, then voluntarily pay the 25-year amount. On the figures above, that means taking the loan at $3,792 and choosing to pay $4,051.
The interest outcome is very close to a genuine 25-year term, because the money hits the principal at the same time either way. But your contractual minimum stays at $3,792, so in a difficult month you can drop back without defaulting or renegotiating.
You give up almost nothing and keep a meaningful safety margin. For most borrowers this is the better structure.
Confirm your lender applies extra repayments to shorten the term rather than reduce future repayments — otherwise the strategy quietly stops working.
When a shorter term genuinely suits
A contractual shorter term does have one advantage: it removes the choice. If you suspect the surplus would otherwise be spent, locking it in is a legitimate form of self-discipline.
It can also suit borrowers close to retirement, where finishing the loan within working life matters more than month-to-month flexibility.
Key takeaways
- —On $600,000 at 6.5%, a 25-year term costs about $259 more a month and saves roughly $150,000.
- —A shorter term permanently raises your contractual minimum repayment.
- —Taking 30 years and voluntarily paying the 25-year amount gets most of the benefit with more safety.
- —A shorter term also reduces how much a lender will let you borrow.
General information only. This guide explains how these products generally work. It does not take account of your objectives, financial situation or needs, and is not financial product advice under the Corporations Act 2001 (Cth). Figures are illustrative. Speak to a licensed financial adviser before acting.