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My interest-only period is coming to an end, what now?

Until recently, interest-only loans were a popular option for many homeowners and investors alike.


Interest only mortgages allowed homeowners to reduce their regular mortgage repayments for a short period of time (generally between 1 and 5 years), which in turn helped home owners to free up their cash flow. This extra cash flow could then be used for other things, like home renovations.

Interest only loans also allowed investors to reduce their regular mortgage repayments. Furthermore, for various tax reasons, there is no urgent reason why an investor should look to pay down the principal mortgage on their property, and interest only loans allow them to avoid doing just that.

Given the various benefits of having an interest only loan, it was clear to see why demand for these types of products was strong.

However, in the last 12 months the market changed. In March 2017, the Australian Prudential and Regulation Authority instructed banks to limit new interest-only lending to less than 30%.

In response, a number of lenders were forced to lift their rates and tighten their interest only policies in order to make these loans less desirable.

Indeed, the aforementioned changes made it increasingly difficult for some borrowers – specifically owner occupiers – to secure this type of mortgage.

With that in mind, if you are an owner-occupier with an interest only loan that is about to expire, you may be wondering what this latest raft of pricing and policy changes may mean for you and your home loan moving forward?

The best thing you can do is speak to your mortgage broker. They will be able to talk you through your options and highlight whether or not you have the ability to extend your current interest only term or move into a different product altogether.

The good news is there are plenty of very competitive principal and interest variable and fixed rates on the market at the moment, so your mortgage broker will be able to secure you a sharp rate which will help with your overall mortgage repayments.

At the end of the day, as an owner-occupier, moving into a principal and interest mortgage may be the ideal step to take. While your regular mortgage repayments may be slightly higher than before, a principal and interest mortgage will ensure you start paying off the principal debt, taking you one step closer to owning your home outright.

Furthermore, with interest rates currently sitting at record lows, there has never been a better time for owner-occupiers to work at paying down the principal debt on their mortgage.

Of course, before you make any decisions or changes to your current financial situation, it is critical that you do your research. Find out what interest rates are on offer and head to your local mortgage broker armed with this knowledge.

From there, they can help you find the ideal solution for your unique needs.

Posted in: Home loans

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