In 2017, the Australian Prudential Regulatory Authority wanted to slow down the number of interest only loans in Australia because they wanted to see more people paying down their debt.
So they asked the banks to reduce the amount of interest only lending they did.
How did the banks respond? By increasing interest rates on every interest only loan in Australia. And not just for new loans, but for every existing interest only loan in Australia. The end result was that interest-only mortgage lending became twice as profitable for banks as lending money to customers who are paying off a home in which they live.
The banks had a choice – they could just change their criteria for interest only lending and lend less. Instead the government gave them an excuse to raise rates on people who already had interest only loans and make a huge profit.
As Mortgage Brokers, we only tend to recommend interest only loans for investors where they have an existing principal and interest mortgage. The idea is not for them to pay their mortgage down slowly or not pay it off at all, the idea is simply to pay off their home first and faster (because they are paying interest only on their investment loan) and pay off the investment property as the secondary priority. The total debt is paid off at the same rate, just the owner occupier portion is the first priority. Any tax accountant will tell you that is the smart way to do it.