A regulatory crackdown on interest-only loans has been much more effective than many anticipated, but rest assured the option is still within reach.
A year ago around 40% of Australians applying for a residential mortgage secured an interest-only loan.
That figure has plummeted to just 16.9%, according to APRA figures for the September quarter.
Why the fall?
In March the regulator instructed lenders to cap interest-only lending at 30% in order to reduce the risks associated with Australia’s historically and internationally high rate of interest-only loans.
The APRA directive called for lending criteria to be tightened, and many banks moved to make interest-only loans less appealing by increasing rates, in some cases as much as 100 basis points.
The crackdown’s immediate effect was seen in the June quarter, when interest-only loans fell to fewer than one in three (30.5%) new loans.
Now just one-in-six new loans being granted are interest-only.
Why apply for interest-only?
We’ve previously discussed some of the advantages of switching to a principal-and-interest loan in the current environment in a previous article.
But for some borrowers, an interest-only loan may still be the better option.
Advantages of interest-only can include:
– the ability to maximise the interest you can claim as a tax deduction
– lower monthly repayments
– better cash flow for your household
– greater capacity to branch out into other investment opportunities due to having more cash available.
Can I still secure an interest-only loan?
Yes, although it’s obviously harder to do so than it once was.
If you’d like to be among the one-in-six borrowers still securing an interest-only loan, please come in and chat.
We’ll assess your individual situation to help you decide whether an interest-only home loan is in your best interests. Then we’ll help you secure the loan you want.
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