The corporate watchdog has released a suite of online tools to help consumers better understand the risks of interest-only mortgages. The new tools complement ASIC's review of loan providers' compliance with responsible lending laws.
Available on ASIC's MoneySmart website, the tools include an interest only mortgage calculator to help consumers work out the real cost of an interest-only home loan, and an interest-only loan infographic that shows the journey of borrowers who take out different types of mortgage.
ASIC deputy chairman, Peter Kell, said while ASIC's review had found that banks and other lenders needed to lift their game to ensure compliance with responsible lending obligations, consumers can help themselves by doing their homework before taking on such a large financial commitment.
"For most Australians, a mortgage is one of the most significant financial decisions they will make in their lives," Mr Kell said.
"While an interest-only mortgage may be attractive due to their initial lower repayments, they generally cost more in the long run.
"Some lenders have also started charging higher interest rates on interest-only mortgages compared to principal and interest mortgages."
Mr Kell said that anyone thinking of taking out an interest-only mortgage needs to have a clear plan of action when the interest-only period ends to ensure they can afford the repayments, which may increase significantly.
Link to Money Smart follows