Australia's interest-only mortgages

Our infographic explains how interest-only mortgages have grown in Australia, how much people are borrowing for an interest-only loan and how much you will really pay for this type of loan.

interest-only mortgages part 1
interest-only mortgages part 2

Australia's interest-only mortgages (Accessible text version)

The average interest-only mortgage is $430k (2014).

For owner-occupiers - 1 in 4 loans are interest-only.

For investors - 2 in 3 loans are interest-only. ⁽¹⁾

Total amount borrowed in interest-only mortgages ⁽²⁾

$88.7 billion in 2012
$153.8 billion in 2015

Pitfalls of interest-only mortgages

Higher repayments when interest-only period ends
More expensive over life of the loan
Principal will not reduce

Benefits of interest-only mortgages

Lower repayments at start of the loan
Can be used for investing and tax purposes
Money saved can help pay off other high-interest credit

Journey of interest-only loan borrowers

Each borrow $500,000 at 6% over 30 years (3)

	Principal and interest	Interest-only for 5 years	Interest-only for 10 years	Interest-only for 15 years
Monthly repayments during interest-only period	$3,000	$2,500	$2,500	$2,500
Monthly repayments after interest-only period	$3,000	$3,220	$3,580	$4,220
Total repayments made	$1,079,000	$1,116,000	$1,159,000	$1,209,000
Additional interest paid due to the interest-only period	$0	$37,200	$80,500	$130,200

Before you get an interest-only mortgage

Things to consider:

Can I afford the higher repayments when the interest-only period ends?
Can I trust myself not to dip into my offset account?
Will the short-term benefits outweigh the long-term costs?

What can you do to get a home loan?

Reduce costs - use an offset account to lower interest payments
Review your plan - expand your search for properties and locations
Better rate - shop around for a loan with a lower interest rate

Use our interest-only mortgage calculator to find out what it will really cost you.

Sources:

(1) ASIC survey of 11 lenders, 2015, data not publically available
(2) APRA, Quarterly authorised deposit-taking institution property exposures: June 2016
(3) Calculations using ASIC's MoneySmart interest-only mortgage calculator (excluding fees)