As Australia’s property market continues to evolve, homebuyers are seeking new ways to break into the market and pay off their loans faster. Enter the growing-equity mortgage (GEM): a dynamic loan structure gaining traction in 2025 for its promise of accelerated equity building and long-term savings. But is it the right fit for you? Let’s unpack how GEMs work, their key benefits and pitfalls, and what’s changed in the latest policy landscape.
What Is a Growing-Equity Mortgage?
A growing-equity mortgage is a home loan where your monthly repayments start low but increase according to a pre-set schedule—often annually. Unlike traditional mortgages with fixed or variable repayments, GEMs are designed to help you pay off your loan faster by increasing the amount that goes towards your principal over time. This structure can appeal to buyers who expect their income to grow or who want to build equity more rapidly without relying on fluctuating interest rates.
- How it works: Your initial repayments are lower, but each year (or at another agreed interval), they increase by a set percentage—often 3-5% annually.
- Result: You pay less interest overall and shorten your loan term, potentially shaving years off your mortgage.
- Difference from extra repayments: GEMs lock in these increases, providing a structured plan rather than relying on voluntary overpayments.
For example, under a $600,000 GEM at 6% interest, your first-year repayments might be $3,600 per month, rising to $3,780 in year two, $3,969 in year three, and so on. Over a 25-year term, this schedule can save tens of thousands in interest compared to a standard mortgage.
Why Are GEMs Gaining Attention in 2025?
Several trends and policy shifts are driving renewed interest in growing-equity mortgages among Australian buyers this year:
- Rising incomes for professionals: Sectors like tech, healthcare, and mining are seeing steady wage growth, making stepped repayments more manageable for many buyers.
- Bank competition: Lenders are introducing innovative loan products to attract first-home buyers and upgraders. Several major banks and non-bank lenders now offer GEMs with flexible escalation schedules.
- Government incentives: Updates to the First Home Guarantee and HomeBuilder programs in 2025 have prompted lenders to design products like GEMs that help buyers maximise equity and reduce mortgage insurance costs.
- Interest rate environment: With the RBA holding rates steady after a turbulent 2023-24, borrowers are keen to pay down debt faster without being exposed to rate hikes.
Real-world example: In Sydney, where median home prices remain high, GEMs are appealing to dual-income families expecting future promotions or business growth. By committing to higher repayments each year, they can clear their mortgage years ahead of schedule and unlock equity for renovations or investment.
Pros, Cons, and Policy Considerations
While the benefits of growing-equity mortgages are compelling, they’re not for everyone. Here’s a balanced look at the upsides and trade-offs in 2025:
- Advantages:
- Faster principal reduction and significant interest savings
- Disciplined, automated approach to extra repayments
- Potential to build equity quickly for refinancing or investment
- May qualify for reduced Lenders Mortgage Insurance (LMI) with rapid equity growth
- Risks and drawbacks:
- Repayment increases are mandatory, not optional—risk of payment stress if income doesn’t rise as expected
- Less flexibility than offset or redraw facilities
- Limited availability: not all lenders offer GEMs, and features can vary widely
- Early repayment break fees may apply
Policy update for 2025: The Australian Prudential Regulation Authority (APRA) has issued new guidelines to ensure lenders properly assess borrower capacity for increasing repayment schedules. Expect stricter income verification and stress testing for GEM applicants. Additionally, some state governments are piloting first-home buyer grants that pair well with GEMs for faster equity accumulation, especially in regional growth corridors.
Is a Growing-Equity Mortgage Right for You?
GEMs can be a smart strategy for Australians who:
- Have predictable career or business income growth
- Want to pay down debt quickly and save on interest
- Are comfortable with a structured, escalating repayment plan
However, those with fluctuating incomes or who value repayment flexibility may prefer traditional variable or offset home loans. As with any major financial decision, it’s essential to model different scenarios and factor in potential life changes—such as parental leave, career shifts, or unexpected expenses—before locking in a GEM.
