In an effort to reduce the number of interest only loans, The Australian Prudential Regulation Authority (APRA), have capped the percentage of interest only loans allowed on a lenders loan book. As a result of the cap, lenders have increased the rates for all interest only loans for both investment and owner occupied securities. Principal and interest loans are now becoming the norm, as the interest rate difference is often the principal component of the repayment.
As an investor, this is not an ideal situation given the interest is the only tax deductible component of the loan. A number of months ago I changed the majority of my investment loans to fixed. If you have an interest only loan for your owner occupied or investment loan, I encourage you to check with the Kaboodle Team if your current set-up is still the best option.
Making the switch to principal and interest repayments might save you on interest and cost you less in repayment. Everybody’s circumstances are different. Don’t panic and rush out looking for a cheaper loan as this change is affecting most lenders and if there are some lenders that aren’t currently affected, they likely will be soon.
Please don’t hesitate to contact us on 1800KABOODLE if you would like to discuss your situation.