Interest only loans are continuing to take a hit, with several major lenders and some second-tier lenders announcing increases to their interest only variable interest rates in recent weeks.

Bendigo Bank and ING Direct are the most recent lenders to follow the likes of Commonwealth Bank, St George, ANZ, NAB, Westpac and Suncorp in increasing variable interest rates on interest only loans, in response to APRA capping interest only loans for new residential mortgage lending at 30 percent for major lenders.

Adding to the crackdown, National Australia Bank has announced that it will start automatically rejecting customers wanting to borrow a high multiple of their income and only pay interest on their home loan.

Zac Peteh, Director of award-winning mortgage broker Mint Equity, said, “Lenders are clearly favouring owner occupied mortgages on principal and interest (P&I) as their appetite for risk is reducing and they are therefore offering price incentives to move to P&I repayments.

“This move has helped slow down the property investment market and reduce unnecessary risk in the financial sector.

“Most lenders are offering to waive renegotiation fees for existing customers wanting to switch from interest only to P&I repayments,” he continued.

So, what does this mean for people with variable interest only loans?

“At the beginning of this year, we predicted that 2017 will be ‘The year of the fixed interest rates’ as it is likely we will see more increases to variable interest rates, particularly for interest-only structures,” said Zac.

“But that doesn’t necessarily mean that those on a variable repayment should hit the panic button and switch to a fixed rate.

“Fixing your interest rate depends on your individual strategy and you need to consider the costs and restrictions of fixed interest rates, such as no offset facility.

“A lot of people are also now considering whether they should now change lenders to find a cheaper interest rate. The key message here is ‘buyer beware’.

“There have been significant changes to credit policy and interest rates across the major banks and second tier lenders over the last 6 months and whilst there are other lenders with lower interest rates, there are often hidden costs or policy restrictions that make borrowing from them more expensive.

“My advice is always to talk to a mortgage broker who can take your current situation into account and let you know if your current deal is the most appropriate.

Read more about the current lending environment:

'Sledgehammer' approach to risky lending could hurt economy: REIA

APRA tightens bank rules to restrict risky lending

Other lenders fill the gap as big four clamp down on foreign borrowers