Morning Briefing: ASIC launches online interest-only loan tools

ASIC's two new online tools are designed to show the costs associated with interest only mortgages... Weak commodities create slippery slope for Aussie dollar...

Morning Briefing: ASIC launches online interest-only loan tools
ASIC launches online interest-only loan tools
The Australian Securities and Investment Commission (ASIC) is hoping to give consumers a better understanding of interest-only mortgages through the release of two new online tools.

The tools, available at ASIC’s website, are designed to show the costs associated with interest only mortgages and help people to make informed decision whether an interest only loan is for them.

In August, ASIC forced numerous lenders to improve their interest-only lending practices, but the watchdog’s deputy chair Peter Kell said it’s important that consumers know what they’re agreeing to.

“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,” Kell said.

“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,” he said.

Earlier this year, buyer’s agent Todd Hunter said he was worried about the number of people who had taken out interest only loans in an attempt to break into the then booming Sydney and Melbourne markets.

“It’s just pure desperation on the behalf of people who want to get into those markets right now and they’re using interest-only loans as a way in,” Hunter said.

“It’s scary because people have gone to interest only loans because they can afford to service them over the interest only period, but the repayments are going to skyrocket when that ends,” he said.

While interest rates are at current record lows, ASIC has reminded people they won’t stay that way for ever and reinforced the importance that people ensure they can service a mortgage if rates do rise.

With that in mind, Joe Sirianni, director of broking firm Smartline, has suggested that people should be considering taking advantage of the current interest rate environment.

“With the rates at the level they’re it might be the right time to protect yourself a bit from any rises in the future,” Sirianni said.

“If you can lock yourself into a fixed rate that might be good idea and if you do have an interest-loan it might be the time to switch to principal-and interest and take advantage of the situation to pay down some debt.”

Weak commodities create slippery slope for Aussie dollar
The Australian dollar was trading at US72.46c at 7am (AEDT), down from US72.73c on Monday after losing its gain made after China's higher than anticipated growth data, according to an article in The Australian. 

ANZ senior FX manager Sam Tuck said China's third quarter gross domestic product had surpassed market forecasts, even though its (GDP) number was weaker than the previous quarter at 6.9 per cent.

"The Aussie drifted back lower in the overnight session once the NAHB housing market index increased to a 10-year high in the US," Tuck said.

He said markets were starting to conclude that with the removal of downside risk from China, it would leave the US Federal Reserve open to consider lifting interest rates.

"And it suggests that maybe the US dollar's decline is done," he said.

Westpac economists added the Reserve Bank of Australia's October meeting minutes would be a highlight for Tuesday.

"But given that statement was almost a clone of the previous, fresh major insights are unlikely," they said.