Big changes have happened over the last few months in the mortgage world, particularly for those who have investment or interest-only loans. If this is you, you may find that your interest rate has increased considerably. We saw some of our clients experience a 1% increase over a period of 6 months.

Why is this happening?

In short, banks are trying to encourage their customers to switch to principle and interest loans to meet their regulatory requirements.

The big four banks have been lifting rates on investor and interest-only loans after the Australian Prudential Regulation Authority (APRA) moved to tighten lending in those areas amid concerns about heightened risk in the housing market.

According to www.smh.com.au, APRA wrote to all banks in March this year, outlining new requirements for banks to reduce interest-only lending to 30 per cent of total mortgage lending. Some banks are now in a panic as they are not meeting this deadline.

How can you reduce your interest rate?

If you are affected by this, you have a number of options:

1. Do nothing. By doing this, you may incur a higher interest rate. 1% rate increase on a $400,000 loan is an extra $4,000 a year in interest! Some food for thought.
2. Switch to principle and interest. Talk to your bank about switching to principle and interest to help reduce your rate.
3. Refinance. Consider if you should be using this as an opportunity to check the market for a better loan.
4. Still not sure? Talk to us! Give our home loan team a call to discuss your options. There is no cost to use our finance broking services.

Categories: Business