Interest rates for Interest Only (I/O) mortgages have increased in the last 3 to 6 months by an average of 0.55% across the big 4 Australian banks and even more by a lot of 2nd tier lenders.
Compounding the problem for many, interest rates for Investors have also increased by an average of 0.58% (average of big 4 Australian banks).
| Property | Repayment | CBA | NAB | ANZ | WBC |
| Owner Occupied | P&I | 5.22% | 5.24% | 5.20% | 5.24% |
| Owner Occupied | I/O | 5.77% | 5.77% | 5.75% | 5.79% |
| Investment | P&I | 5.80% | 5.80% | 5.80% | 5.83% |
| Investment | I/O | 6.24% | 6.25% | 6.26% | 6.30% |
Big 4 “Base Rates” (these exclude any negotiated discounts)
The APRA effect
In March 2017, the Australian Prudential Regulation Authority (APRA) gave an ultimatum to all Australian lenders, demanding restrictions on I/O lending to a maximum of 30% of all new loans written. This came on the back of the APRA requirement for lenders to increase their capital leverage ratios. APRA have cited their reasoning as needing to create an “unquestionably strong” banking system and to cool the current hot property market in Sydney and Melbourne.
Most Australian lenders, at the time of APRA’s requirement, were funding I/O loans at a rate of around 40% of all loans written. Consequently, most lenders were forced to take measures to drastically reduce I/O lending by either disallowing the loans altogether or severely lifting interest rates to entice borrowers to pay opt for Principal & Interest (P&I) repayments.
What can you do?
Firstly, know your interest rate. It’s easy to miss notifications from your lender advising of interest rate increases. Drill down in your internet banking to find your interest rate or call your lender and ask.
Secondly, talk to your Credit Adviser. Now more than ever, it’s a great time to have an experienced Adviser on your side to…
- Provide advice on what you can do to minimise the effect of these increases
- Negotiate, on your behalf, with your current lender to get a higher level of discount
- Change the loan, repayment type or even lender to make sure you’re getting the best deal
