In years gone by, interest only loans have been particularly popular with investors and more recently by speculators in the booming Sydney & Melbourne property markets.
Advantages of interest only lending include:
Disadvantages are seen as:
The banks used to be quite flexible with interest only loans but crackdowns by government agencies
have seen interest rates rise sharply and lending criteria applying to these types of loans tightened considerably to the extent that many banks insist on P&I payments at the end of the interest only period rather than granting an extension. This leaves the borrower with the option of either refinancing elsewhere which might not be possible or having to make much higher P&I payments which may cause mortgage stress. This coupled with rising interest rates, falling property prices and/or reduced rental yields means interest only borrowers are caught in a triple pincer movement.
What can you do? Variable rates are on the move so if you are not planning on selling in the near future, give consideration to switching to a lower fixed rate which then gives you peace of mind and budget certainty. Plan ahead. If your interest only loan is due to expire in the next 12 months, contact us now to evaluate your options. Lending criteria is only going to become stricter so beat the banks to the punch by restructuring your loan sooner rather than later. With property prices falling around the country, it is in your best interests to switch your loan to a P&I basis as soon as possible. Equity in your property improves by either the value of your property going up and/or the balance of your loan coming down. Property prices are softening so stem the bleeding in equity by paying your loan off and be rewarded with a cheaper interest rate.
We’re here to help, so please contact us with any queries you may have by calling us on 63802377 or email [email protected]