Borrowers must brace for refinance woes

first_imgPredicted rate rises and pressure from APRA could spell disaster for borrowers looking to refinance out of interest-only loans.Economists have said a clamp down by the Australian Prudential Regulation Authority (APRA) on interest-only loans will cause problems for borrowers needing to refinance.A survey of 33 experts and economists by comparison website revealed all believe the cash rate will remain on hold when the Reserve Bank release their interest rate call tomorrow.But 80 per cent of the respondents predicted future rate rises, which said will have a dramatic effect on interest-only borrowers.“As APRA is aiming to keep all new interest-only loans below 30 per cent of total new residential mortgages, most panellists (57 per cent) surveyed on this topic believe borrowers switching from interest-only to principal and interest, or those whose fixed interest-only terms are nearing expiring, may have a hard time refinancing.”Graham Cooke, insights analyst, at, said interest-only borrowers will be hardest hit, because a switch to principal and interest brings an additional rise in repayments.“With the next rate move likely to be in a positive direction, and with many lenders already lifting product rates, interest-only mortgage holders will be the most directly affected,” he said.More from newsMould, age, not enough to stop 17 bidders fighting for this home4 hours agoBuyers ‘crazy’ not to take govt freebies, says 28-yr-old investor4 hours agoMr Cooke said, for example, for a $800,000 interest-only loan with four per cent interest, repayments will be $2667 versus $3819 for those borrowers also paying down the principal. However, increasing the interest rate from four per cent to six per cent would up the interest-only loan repayments by $1333 per month, yet the principal and interest repayments would rise by only $997.Meighan Hetherington, principal of Brisbane based buyers’ agent Property Pursuit, said APRA’s measures are aimed at slowing Sydney and Melbourne markets.“The way that APRA is putting pressure on the banks to change the way they do some of their lending … is an Australia-wide solution to what is really a two-city problem,” she said.“Our view is that Brisbane is a very steady, very consistent market that doesn’t need this level of regulation applied to lending to slow down or stop any great run on the market.Ms Hetherington said there will also be unwanted fallout for markets outside capital cities too.“They’re using a cricket bat to swat a fly.“A lot of the regional markets that aren’t performing are being heavily impacted, and those are the markets that I think will see some unexpected outcomes that aren’t going to be positive,” Ms Hetherington said.last_img

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