Your loan term usually has little effect on the interest rate you’re offered, since most Australian lenders charge the same rate for 25 and 30-year loans. What the term changes is your repayment and your total interest. A shorter term means higher repayments but far less interest. A longer term means lower repayments, more borrowing power and more flexibility, but you pay interest for longer. Many borrowers take a 30-year term for flexibility, then repay at a higher amount to finish sooner.
20 vs 25 vs 30 years compared
On a $600,000 loan at 6.63%, principal and interest:
| Loan term | Monthly repayment | Total interest |
|---|---|---|
| 20 years | $4,519 | $484,675 |
| 25 years | $4,100 | $630,035 |
| 30 years | $3,844 | $783,786 |
Our calculations, excluding fees. Try your own scenario in the mortgage repayment calculator.
Going from 30 to 25 years adds $256 a month to repayments but saves about $153,750 in interest. Going to 20 years adds $675 a month and saves almost $300,000.
Does a shorter term get a lower rate?
Usually not. Most lenders price on LVR, loan purpose and repayment type, not term. A few lenders and some products may differ, so check. The real saving from a shorter term comes from paying the loan off sooner, not from a lower rate. To see how the total cost builds up, see the true cost of a home loan.
How the term affects borrowing power
Lenders assess whether you can afford repayments at your rate plus a 3 percentage point buffer. A longer term means lower assessed repayments, so you can usually borrow more over 30 years than over 25. Lenders may also limit the term based on your age and when you plan to retire. See how much you can borrow.
Shorter loan terms (10 to 20 years)
Suit you if: you have a high, stable income, want to be mortgage-free sooner, or are refinancing later in life.
Watch out for: less room in your budget if rates rise or income drops, and a lower borrowing limit.
Longer loan terms (25 to 30 years)
Suit you if: you want lower minimum repayments, need to maximise borrowing power, or want a buffer for changes in income or rates.
Watch out for: paying much more interest if you only ever make the minimum repayment.
The flexible approach: long term, higher repayments
Take a 30-year term, but repay as if it were 25 years. On a $600,000 loan at 6.63%, that means paying $4,100 a month instead of $3,844. If your loan allows extra repayments, you’ll finish in about 25 years and save about $153,750, but you can drop back to the minimum if money gets tight.
Pair it with:
- More frequent repayments. Paying half the monthly amount every fortnight works out to one extra monthly repayment a year. See weekly vs fortnightly vs monthly repayments.
- An offset account for your savings and salary.
Can you change your term later?
Yes. You can shorten your term by asking your lender to recalculate your repayments, or simply by paying more. You can also extend the term to reduce repayments if money is tight, usually through a variation request or by refinancing. Extending adds interest, so read the pros and cons of extending your loan term first.
Frequently asked questions
Is a 25 or 30 year home loan better?
A 25-year loan costs much less interest, about $153,750 less on a $600,000 loan at 6.63%, but needs $256 more a month. A 30-year loan with voluntary extra repayments gives you similar savings with the option to drop back to lower repayments if needed.
Does a shorter loan term get a lower rate?
Usually not. Most lenders charge the same rate for 25 and 30-year terms. The saving from a shorter term comes from paying interest for fewer years.
Can I change my loan term later?
Yes. You can shorten it by repaying more or asking your lender to recalculate repayments, and you can extend it through a loan variation or by refinancing, subject to the lender’s approval.
Sources
- ASIC Moneysmart, Pay off your mortgage faster
- APRA, Macroprudential policy settings, May 2026
- Canstar, Average home loan interest rates, as at 2 October 2026
General information only. It does not consider your objectives, financial situation or needs and is not credit advice.