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.