Survival mode: 1 in 5 mortgage holders go interest only
More than half a million Aussie mortgage holders have paid interest only, some as a last ditch effort to avoid delinquency, according to new research by Finder.
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A Finder survey of 1,062 respondents – 346 of whom have a mortgage – revealed 1 in 5 (21%) have gone 'interest only' over the past two years.
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That's equivalent to 693,000 people who have made the change in order to pay the bare minimum on their loan.
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The research found 6% of borrowers – 198,000 people – are currently servicing interest only loans to circumvent falling behind on their mortgage repayments.
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Richard Whitten, home loans expert at Finder, said millions of Aussie households are in survival mode.
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"Such a large portion of people's earnings are allocated to their mortgage and spare cash has been extinguished.
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"A growing number of Aussies are struggling to make their mortgage payments due to cost of living pressures and can't continue on the path they're on."
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The number of mortgage-holders defaulting on their loans has ticked higher over the past few years.
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Finder analysis of the Australian Prudential Regulation Authority data shows $14.6 billion worth of home loans were 30-89 days past due in March 2024 – up 65% from $8.8 billion in December 2022.
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Overdue mortgages have been rising each quarter over the past year and a half – now accounting for 0.9% of all outstanding home loan debt, up from 0.62% in December 2022.
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Whitten urged struggling mortgage holders to seek financial hardship assistance from their lenders.
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"Banks have a responsibility to support customers experiencing financial stress, so put shame aside and speak up if you are in that position to ease the burden until you can sort out serviceability."
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Whitten said all borrowers should make sure they're on a competitive interest rate.
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"You should be looking for an interest rate starting with a '5' or a low '6' – otherwise you're paying too much.
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"The start of a new financial year is a great time to do a mortgage audit and compare whether there are better deals around.
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"Eliminate wasteful spending and destructive debt and make sure your habits and decisions align with your future wealth creation goals."
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| Have you gone interest only on your home loan at any point in the last two years? | |
|---|---|
| Yes, and I am currently paying only interest | 6% |
| Yes, but I am currently paying both interest and principal | 15% |
| No | 79% |
| Source: Finder survey of 346 mortgage holders, June 2024 |
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Methodology
- Finder's Consumer Sentiment Tracker is a monthly recurring nationally representative survey of more than 60,000 respondents.
- Figures in this release are based on 1,062 respondents from June 2024, 346 of whom have a mortgage.
- The Consumer Sentiment Tracker is owned by Finder and operated by Qualtrics, an SAP company.
- The survey has been running monthly since May 2019.
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Interest-only home loans reduce your mortgage repayments early on, but you will pay the interest back later. Learn more here.
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