Do you want to see maximum loan tenure extended up to 40 years for affordable home buyers?

There was recently a conversation in a facebook group with the initial question being our thoughts on an article that just came out by The Edge Market on how the maximum loan tenure could be extended to 40 years for affordable home buyers.

The question was simple: what do we think.

Pretty much everyone agreed that it was a great thing if you were an investor. The longer the duration, the less you pay each month which makes it easier for you to get rent that covers the costs and leaves you with money. In other words, it's easier to get positive cash flow.

However, once it came to for personal use, everyone was against it.

That is, everyone except me.

I think they were all thinking about the total amount of money that would be paid. Naturally, because you are extending the duration out as much as possible, you are also allowing the interest to compound a lot more. In fact, I wouldn't be surprised if at the end of that first year, less than 2% of the money you paid went to paying down the actual principal.

However, I'd like to offer a different view on this.

image source: facebook

1. Being given 40 years doesn't mean you have to use 40 years.
   If you're set on not paying a single sen more than you need to, there's nothing stopping you from paying for the whole house up front. Of course, that's extreme, but if you want to pay the house off in 15 years, then take the 40 years loan but instead of paying the required amount each month, pay the amount you would have to pay if you had a 15 year loan and in 15 years, it will be paid for.
   That way, you still have the ability to pay less if something came up (which would not be an option if you actually signed a 15 year agreement)
2. Just because it's 40 years doesn't mean you can't sell early
   If the property isn't serving your needs or your family's needs in the future, you can still sell the property. In fact, there's a chance that you'd be ahead compared with a 40 year loan compared to someone with a 15 year loan. The reason is a property's appreciation isn't dependent on how much you pay. It doesn't care.
3. What we tend to forget is that there is still inflation. Inflation eats up the value of money (ie/ you can buy less with the same amount of money in a year's time than today). That means the longer you're able to not pay your principal, the less the principal is actually worth.

Of course, this is a very general analysis. But the one that is definitely true, is that you do have a lot more freedom by taking a longer term loan (more unexpected expenses, more money to invest into yourself etc)

So what do you think?