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 (Accessible text version)
The average interest-only mortgage is $347k (2017). (Source: see
source 1, below)
For owner-occupiers - 1 in 4 loans are
interest-only. (Source: see source 2,
For investors - 2 in 3 loans are interest-only. (Source: see source 2, below)
Total amount borrowed in interest-only mortgages
- $156 billion in 2015 (Source: see source 1, below)
- $135.5 billion in 2017 (Source: see source 1, below)
Pitfalls of interest-only mortgages
- Higher repayments when interest-only period ends
- More expensive over life of the loan
- Principal will not reduce
- Interest rate may be higher than a principal and interest
Benefits of interest-only mortgages
- Lower repayments at start of the loan
- Greater tax deductions for investment properties
- Can be used for a bridging or construction loan
Journey of interest-only loan borrowers
Each borrows $750,000 over 30 years. (Source: see source 3, below)
Principal and interest
(Lin-Yi and Bruce)
Interest-only for 5 years
(Amanda and Raj)
Interest-only for 5 years
(David and Louise)
|Monthly repayments during interest-only period
|Monthly repayments after interest-only period
|Total repayments made
|Additional interest paid due to the interest-only period
- Lin-Yi and Bruce got the lowest rate because
they chose principal and interest.
- Amanda and Raj would not be able to get this
low rate on an interest-only loan, but this shows how much
more they would pay if they did get the same principal and
- David and Louise pay a higher interest rate as
they chose an interest-only loan. They will pay an additional
$97,035 over the life of this loan compared with Lin Yi and
Bruce's principal and interest loan with an interest rate of
Before you get an interest-only
- Can I afford the higher repayments when the interest-only
- Can I trust myself not to dip into my offset account?
- Will the short-term benefits outweigh the long-term costs?
- If I can't afford a principal and interest loan, is now the
right time to borrow?
Things to consider:
- Reduce costs - lower your interest
payments by putting extra into an offset account
- Review your plan - expand your property search
to find a cheaper home
- Shorten period - reduce the
interest-only period to lower long-term repayments
Use our interest-only mortgage
calculator to find out what it will really cost you.
1. APRA, Quarterly authorised deposit-taking institution
property exposures: September 2017.
2. ASIC survey of 11 lenders, 2015. Data not publicly
3. Calculations using ASIC's MoneySmart interest-only mortgage
calculator (excluding fees).
Last updated: 14 Dec 2017