5.65% var i/o: Time for refinance?

Since refinancing last year with two other IP's to P&I (fixed 3.88% NAB) I am considering options with our last IP on I/O:

• $142k loan with Westpac
  
• 5.65% Variable I/O
• $659pm
  
• Valuation $430k

Thoughts on what loans are out there for P/I with lower rate? Fixed or variable, wondering if I can leave it and just pay down a few thousand on the principle on the current loan (but I'm not sure if the bank will allow that, Ive never tried.

 

With low loan amounts there won't be much discounting being offered. But this is a bit high - perhaps very.

 

Very high, but I have to admit, since posting this I had a good look at the loan features: redraw is available. I have just dumped a $70k savings buffer I had in an interest bearing account, now it can do some meaningful work and save me $300pm in interest repayments!

 

Couple of lenders that don't price on loan amount - beneficially for people with smaller loan amounts not so with people with high loan amounts.

Servicing, policy, etc permitting then you should be able to get 4.06% for P&I investment and 3.64% for P&I owner occupied. That should save you around $2,200 per annum in interest but you need to factor about $1,000 in refinancing costs, such as exit fees, stamping charges, etc.

 

$2200 seems like a decent saving, until, as you say, factor in the refinance costs. I will stay put for now, I can save $4k a year just by leaving my savings on the loan, and I can still access them if I come upon hard times. Thanks for your view Shahin.

 

Just be mindful of the tax implications of having the funds plonked in the loan versus in an offset account. Speak to your Accountant about this.

 

Good point! Maybe there was a reason why I haven't done this sooner after all.

 

I suspect you took the Flexi First investment loan, which has a honeymoon rate. It's a good deal initially, but after 2 years the honeymoon ends and this isn't a good deal by any stretch.

The same product P&I would be 5.14%. Your interest would drop, but the repayments would actually increase by as much as about $150 per month. A better option within Westpac would be to fix as they will do around 4.39% P&I or 4.45% I/O. Don't bother with the Westpac pro-pack, the cheaper rates are negated the fees with this amount of money (unless you have other loans with a pro pack at Westpac).

Moving lenders would cost roughly $600 plus whatever fees are applicable with the new lender. For this amount, you'd need to be saving about 0.4% or more just to make up the moving costs within 12 months (not that hard to acheive).

With nothing else to consider, I'd probably fix with Westpac. Quick, easy and cost effective.

There might be other reasons, such as an equity release, which may make it more worthwhile to refinance. A more detailed understanding of the bigger picture would be needed to determine if this is worthwhile.

 

Hi Rolf,

Not sure exactly what's in store for this property. It was our first property purchase back in 2006. We paid off ppor couple of years back, so only a small car loan left ($25k~).
My initial goal was to acquire property quickly and then sell half and pay rest off. Live off rents. This strategy won't work now days, I thought of live off equity, but doubtful how to work it. Really just treading water tbh. I got to 3 X IP val$1.5m (debt: $1.08) and ppor $1.1m.
Got a suggestion?

 

what about the tax consequences?

 

Well, there you have it, not my finest financial decision, but it is safe to say our accountant advised to return the funds so here I am, back to square one. Peter I appreciate your input, will have a closer look at westpac 4.39% option. Live and learn. That is what I say!

 

Stop - this could make it worse. You will need to split the loan before you return the funds or suffer tax consequences, if my understanding of what you have done is correct.

 

Noted Terry. I will have further discussion with my accountant tomorrow. Thanks for your advice.