The Australian Prudential Regulation Authority (APRA) will soon remove its so-called interest only "speed limit" that saw banks put the brakes on interest only loan approvals.

We expect more affordable interest rates are just around the corner but is the correct time to apply for an interest only loan?

APRA has removed the 30% cap

Since March 2017, the major banks and other authorised deposit-taking institutions (ADIs) have actually been required to cap interest only approvals to 30 per cent of their entire loan book.

The speed limit was part of a raft of requirements introduced by the industry regulator (APRA) ahead of the damning Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Market.

Satisfied that lenders have actually properly decreased their loan book danger, APRA will get rid of the IO cap from 1 January 2019.

The most recent news follows the removal of the 10% growth rate cap on financier loaning back in July this year.

" APRA's loaning standards on financier and interest-only lending were always intended to be short-term," APRA chairman Wayne Byres said.

" Both have actually now served their function of moderating higher risk lending and supporting a gradual strengthening of financing requirements throughout the market over a number of years."

Is this good news for residential home investors?

We're likely to see interest only rates dropping to match principle and interest (P&I) rates of interest over the next few months.

Nevertheless, the short-term will see banks continue to keep a relatively tight leash on interest just home loan approvals so lender choice is necessary.

The reason is that APRA still requires ADIs to preserve appropriate oversight of the level and type of interest only lending.

Loaning power will continue to be heavily-reduced for interest only applications due, in part, to the crackdown on evaluating living expenses.

Is The Interest Only Loan Crackdown Over?

We also believe that banks will continue to perform stringent queries as to the function of the interest only term.

What we were seeing on a regular basis was borrowers not able to extend their interest only duration when refinancing.

As a general rule, approvals for interest only home loan will be challenging while IO for financial investment will be quicker accepted as long as you remain in a great financial position.

For instance, loan providers will be weary about authorizing and extending an IO term for a debtor with http://lowestinterestrates.com.au black marks on their credit file or those with a poor payment history.