Loan Term: What 30 Years vs 25 vs 20 Really Costs
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August 20, 2026
21 days ago
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In short: Shortening the term raises your repayment far less than proportionally, because you stop paying interest for the years removed. On a $750,000 loan at 6.5%, cutting from 30 years to 20 costs $852 more a month but saves about $364,000 in interest.
Key takeaways
- 30 to 25 years costs $323/mo more and saves ~$188,000 on a $750,000 loan.
- The saving comes from eliminating the highest-interest late years.
- Extra repayments on a 30-year loan achieve the same result with more flexibility.
- A shorter term is a commitment; extra repayments are a choice.
The trade-off
$750,000 at 6.5%:
| Term | Monthly | Total interest | Saved vs 30yr |
|---|---|---|---|
| 30 years | $4,740 | $956,500 | - |
| 25 years | $5,063 | $768,900 | $187,600 |
| 20 years | $5,592 | $592,100 | $364,400 |
| 15 years | $6,534 | $426,200 | $530,300 |
Term or extra repayments?
They produce the same outcome. The difference is obligation.
A 20-year term commits you to $5,592 a month. A 30-year term with $852 of voluntary extra repayments achieves the same result while leaving you able to drop back to $4,740 if income falls.
For most borrowers, the 30-year term with disciplined extra repayments is the better structure - provided the discipline is real.
The serviceability angle
A shorter term raises the assessed repayment, which reduces how much you can borrow. Borrowers at the limit of their capacity often have no practical choice but 30 years - and can then pay it down faster once settled.
Frequently asked questions
Can I change my loan term later?
Usually yes on a variable loan, either shortening it or extending it. Extending typically needs a serviceability check; shortening usually does not.
Do lenders offer terms beyond 30 years?
Rarely in Australia. Thirty years is the standard maximum for most residential lending, with some exceptions for construction or specific products.
Does a shorter term get a better rate?
Generally no - unlike fixed terms, the loan term itself does not usually affect pricing on a variable loan.
Related reading
- The Home Loan Repayment Formula, Worked Step by Step
- Lump Sum vs Extra Repayments: Which Saves More?
- Refinancing Your Home Loan: The Complete 2026 Process
Sources
- Paying off your mortgage faster — ASIC Moneysmart
- Housing lending rates, statistical table F6 — Reserve Bank of Australia
Rates checked as at 2 September 2026. Interest rates, lender policies and government schemes change frequently. Figures in this article are illustrative and were accurate at the date shown.
General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.
Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.
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