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Survival mode: 1 in 5 mortgage holders go interest only

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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.

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.

That's equivalent to 693,000 people who have made the change in order to pay the bare minimum on their loan.

The research found 6% of borrowers – 198,000 people – are currently servicing interest only loans to circumvent falling behind on their mortgage repayments.

Richard Whitten, home loans expert at Finder, said millions of Aussie households are in survival mode.

"Such a large portion of people's earnings are allocated to their mortgage and spare cash has been extinguished.

"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."

The number of mortgage-holders defaulting on their loans has ticked higher over the past few years.

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.

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.

Whitten urged struggling mortgage holders to seek financial hardship assistance from their lenders.

"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."

Whitten said all borrowers should make sure they're on a competitive interest rate.

"You should be looking for an interest rate starting with a '5' or a low '6' – otherwise you're paying too much.

"The start of a new financial year is a great time to do a mortgage audit and compare whether there are better deals around.

"Eliminate wasteful spending and destructive debt and make sure your habits and decisions align with your future wealth creation goals."

Have you gone interest only on your home loan at any point in the last two years?
Yes, and I am currently paying only interest6%
Yes, but I am currently paying both interest and principal15%
No79%
Source: Finder survey of 346 mortgage holders, June 2024

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.

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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