A third of Australian homeowners may be unaware of the risks associated with interest-only mortgages, with a lack of financial literacy possibly to blame, according to a survey by UBS. Interest-only loans offer lenders an initial period when they pay off only the interest on the mortgage, but after that has elapsed, they must pay back the main loan as well, or refinance. Analyst Jonathan Mott said customers could face increases of between 30% and 60% at the end of interest-only periods, which could lead to "substantial stress". The report also found that while some borrowers were able to reduce their monthly payments, others had been forced into repayments for more than two years.
A third of Australian homeowners may be unaware of the risks associated with interest-only mortgages, with a lack of financial literacy possibly to blame, according to a survey by UBS. Interest-only loans offer lenders an initial period when they pay off only the interest on the mortgage, but after that has elapsed, they must pay back the main loan as well, or refinance. Analyst Jonathan Mott said customers could face increases of between 30% and 60% at the end of interest-only periods, which could lead to "substantial stress". In 2015, the Australian Securities and Investments Commission questioned banks' credit standards in interest-only lending.