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Interest-only mortgages still available at historically low rates

Interest-only mortgages still available at historically low rates

Borrowers are still able to access interest-only mortgages for less than 4 per cent, despite the crackdown on interest-only mortgages launched one year ago.

At least nine Australian lenders are offering interest-only mortgages with a ‘3’ in front of them, including CUA, Freedom Lend, Homestar Finance, Liberty, MyState, Southern Cross Credit Union, State Custodians, Suncorp Bank and QBank.

Southern Cross Credit Union charges interest-only borrowers as little as 3.68 per cent (comparison rate 3.69 per cent) for its Basic Home Loan (see table below).

Borrowers who favour using better-known home loan lenders, but still want sub-4 rates, can turn to Suncorp Bank for their interest-only mortgages.

Suncorp Bank offers its Back to Basics loan for 3.78 per cent (comparison rate 3.73 per cent) and its Home Package Plus First Home Buyer Special Offer for 3.89 per cent (comparison rate 3.84 per cent).

APRA, the banking regulator, recently reported that for new lending, the share of interest-only mortgages fell from 36.26 per cent in the March 2017 quarter to 15.22 per cent in the December 2017 quarter.

One reason for the sharp drop in interest-only mortgages is that home loan lenders have increased their interest-only home loan interest rates during the past year. Nevertheless, some Australian lenders continue to price their interest-only mortgages at historically low rates.

LenderProductAdvertised rateComparison rate
Southern Cross Credit UnionBasic Home Loan3.68%3.69%
Homestar FinanceOwner Occupied Home Loan3.74%3.78%
Suncorp BankBack to Basics3.78%3.73%
QBankClassic Home Loan Special3.78%3.79%
State CustodiansLow Rate Home Loan3.79%3.82%
Suncorp BankHome Package Plus First Home Buyer Special Offer3.89%3.84%
LibertyLiberty Star3.89%4.20%
Freedom LendVariable Interest Only3.94%3.70%
CUAAdvance Variable3.99%3.69%
MyStateBasic Variable3.99%3.83%

Please note that the cheapest interest-only home loan won’t necessarily be the best mortgage for borrowers.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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