Thanks to sneaky rate hikes on interest-only mortgages, banks stand to reap a half-a-billion-dollar-a-year windfall from a growing number of borrowers. Those who have interest-only loans are facing an ultimatum--either switch to principal-and-interest or face a rate hike of as much as 0.15 percentage points. An increase of just 0.1 percentage points adds $42 a month of $500 a year to repayments.
Data from the Reserve Bank shows that about one in four owner-occupied mortgages is interest-only, while two in three investor loans are interest-only. These numbers have been rising over time.
The National Australia Bank is the largest bank to lift interest-only rates, with its 0.1 per cent rise imposed last August expected to net about $85 million in extra interest annually from its $86 billion worth of interest-only mortgages.
According to a NAB spokesperson, this move was part of managing “the prevalence of interest-only lending in the Australian housing market. These differentiated rates mean our customers can choose a mortgage structure that best suits them.”
Another bank that ratcheted up its interest-only rates is Macquarie Bank. It hiked up its estimated $10 billion worth of loans by 0.15 percentage points last year, possibly earning an additional $15 million a year in interest.
Canstar, a financial products research firm, has a database showing that 14 lenders are riding the trend of charging interest-only customers a higher rate. The Australian Securities and Investments Commission found none was doing so at the end of 2014.
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