Customers with interest-only loans are likely to be charged higher premiums by banks compared with those who shoulder principal-and-interest loans, home loan experts predict.

Interest-only loans, which until recently made up roughly 40% of all new home loans, are the prime targets of a crackdown by the nation’s regulators, who’re intent on slowing down growth in the mortgage market.

Towards the end of March, the Australian Prudential Regulation Authority (APRA) ordered banks to lower the proportion of new interest-only lending to 30%. Since then, banks have increased the relative cost of interest-only loans by up to 0.56 percentage points.

John Flavell, CEO of Mortgage Choice, predicted that the gap between what banks charge for interest-only loans and principal-and-interest loans could widen to about 0.7 percentage points. Interest-only loans typically revert to being principal-and-interest loans after approximately five years.

“I would expect some pretty [aggressive] pricing in terms of people rolling over their interest on loans and encouraging them to go principal and interest,” Flavell said. “The difference between principal and interest-only loans will widen further.”

Newly-released data has confirmed the impact of APRA’s March crackdown, with the Australian Bureau of Statistics (ABS) reporting a 2.3% drop in new lending to investors in April.
 

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan

OTHER SECTIONSFirst Home BuyersRefinance MortgagesProperty InvestmentInterest RatesNewsArticlesQ & ATips