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Should you switch to a principal-and-interest home loan?

07 September 2017

The June quarter has seen a noticeable seven per cent drop in new interest-only housing loans.

The Australian Prudential Regulation Authority figures suggest banks have clearly responded the regulator’s demand they keep new interest-only loans to 30 per cent of new lending.

Sally Tindall from comparison website RateCity said the seven per cent drop from the previous quarter came despite a 10 percent rise in new lending overall.

“Today’s data is clear: the banks have heard APRA’s message and have hit the brakes for new lenders looking to pay interest-only,” she told Your Investment Property.

“Interest-only terms are now sitting at 30.5 per cent of all new lending which is just a fraction above APRA’s target.”

With lenders lifting rates to encourage principal-and-interest loans, borrowers are increasingly asking themselves whether they should make that switch from interest-only to P&I.

“The latest APRA figures suggest new investors are opting to pay principal-and-interest instead of higher rates,” Tindall said. 

“That said, not all investors are making the switch – people looking to maximise negative gearing are likely to stick it out with higher rates.”

“Either way, the best strategy for both sets of investors is to shop around for a lower cost loan,” she told Your Investment Property.

“While investor rates under 4 per cent are a dying breed, there are still a handful to choose from, starting from as low as 3.74 per cent for someone paying principal and interest and 3.94% for investors paying interest-only.”

Speak to Perry Finance today to discuss your best home loan options and whether you should stick to an interest-only or make the switch to a principal-and-interest loan.

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