40-Year Mortgage: Cheaper Instalments, But Paying Interest Until Old Age

The proposal to extend the tenor of Home Ownership Credit (KPR) to 40 years, initiated by the Ministry of Housing and Settlement Areas (PKP), has sparked sharp discourse in the national property sector. On one hand, this scheme is projected as an instrument to accelerate home ownership for Generation Z and millennials. PKP Minister Maruarar Sirait stated that the policy aims to reduce the burden of monthly instalments to align with the income profiles of low-income communities (MBR). Nevertheless, financial calculations reveal that the reduction in instalment amounts does not correspond proportionally to overall payment efficiency. Referring to a simulation of a subsidised house price in 2026 worth Rp185,000,000 with a fixed interest rate of 5 percent, there is a fundamental difference between the conventional tenor and the 40-year tenor: 1. For a 20-year tenor, the instalment is around Rp1,220,000 per month. The total amount paid to the bank until full repayment reaches approximately Rp292.8 million. 2. For a 40-year tenor, the instalment drops to around Rp890,000 per month. However, the total payment commitment swells to Rp427.2 million. Technically, the debtor pays nearly twice the house price to gain monthly cash flow relief of Rp330,000. Housing observer and member of the ITB Housing Sector Expertise Group, Mohammad Jehansyah Siregar, views the 40-year tenor as a form of financial anaesthesia. The speed of equity growth, or the real ownership value of the house, progresses very slowly in the first 20 years because the majority of instalments are absorbed to pay compound interest. “An excessively long tenor places the debtor at risk of life-cycle uncertainties. Over 40 years, risk variables such as job loss, health decline, and macroeconomic fluctuations are very high. This is a duration that exceeds the average productive years of workers in Indonesia,” Jehansyah explained. Without adequate construction quality, debtors risk still paying instalments when the house building requires total renovation or experiences massive functional degradation. The implementation of the 40-year KPR is truly a double-edged sword. It serves as an entry point for those excluded from the property market due to high land prices, but it also becomes a debt trap if not accompanied by sufficient financial literacy.