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.


Unemployment in Australia has dropped to its lowest level in four-and-a-half years.

Read more

Renting your investment apartment out through Airbnb could yield an even better return than finding a long term tenant.

Read more

Under what conditions do buyers find a way to pay less for a property than it's actually worth?

Read more

While the horses were stealing the show at Flemington yesterday for the Melbourne Cup, the Reserve Bank kept interest rates on hold at 1.5 per cent for another month.

Read more