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.


If you need access to fast short-term capital did you know that bridging finance could be an option?

Read more

The Reserve Bank has warned house prices are at risk of falling if the banking royal commission ends up causing banks to restrict the amount of money they are willing to lend.

Read more

On the weekend our city recorded a clearance rate of 60.7 per cent and for the weekend prior, the auction clearance rate has been revised down to below 60 per cent – to 58.9 per cent.

Read more

This year’s Federal Budget includes a plan to help up to 20,000 older Australians stay in their own home but some say it contradicts policies designed to free up housing.

Read more