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.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

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