ANZ Drops PI rate but Increases IO rates

ANZ has just announced they will be reducing PI rates by 0.05% but will increase IO rates by 0.30%. LOC rates increase by 0.30% too.

 

ANZ lifts interest-only home loan rates, but cuts principal and interest loans

 

Lucky I fixed 3 yr io with anz a mth ago, not sure what would happen after 3 yr, may be will have to switch back to pi

 

Yep...exactly as predicted... P&I to get a touch cheaper, and I/O to get dearer. This wont be the last of these announcements. I expect at least one more "adjustment" before years end.

Good news is - the 30% I/O quota will open up the option of an RBA cash rate cut... so P&I may get even cheaper before the end of the year. Nothing would find it's way to I/O borrowers though.... so effectively that would give the banks another 25bpts on I/O, and avoid the need to actually increase retail rates. ie the actual rate to borrower may not go up any further for I/O if the RBA cut the cash rate.

Result of an RBA cut = P&I will be lower. I/O will be unchanged from current rates, but generating an additional 25 bpts "spread" to lenders.

Of course, if the RBA does not reduce the cash rate, expect another 20-30bpts to come the way of I/O borrowers by years end.

 

Just waiting now for the others to follow.

 

RBA cut coming soon.

Matter of time until banks get over i/o lending and go back to the old days.

 

As the P&I rate and IO rates are widening, would it be best to go P&I fixed on investment loans at the moment and hope that things will settle back down

 

And the fires to continue on burning in Melbourne and Sydney when the next rate drop comes and we see the Big4 with discounting on P&I back under the 4s and into as low as 3.8s.

This means the mid tiers will likely be dangling in the low 3.7s and dare I say 3.6s.

 

Yup

This small policy changes by banks is seperating the real investors from the pretenders.

Won't be long until everything reverts back as it was 10 months ago.

 

If that's how it goes, never a better time to work on debt reduction. Make hay while the sun shines...

 

But rates have been increasing according to my bank statements, regardless of what RBA are doing.

Majority of investors go IO loans

 

Opinions change with the weather.
At the moment, I'm thinking P&I variable because I can tolerate rate increases, even if I don't like them. I'm thinking P&I will either stay the same or decrease. However, I know nothing and it's just my preference to wait and watch atm. Plenty of others have fixed P&I based on recent rates threads.

 

Why is there no option?

US Fed Reserve has started increasing rates

 

For those who have unused offset funds in your PPOR loan and an IP I/O loan, it could be useful to convert your IP loan to P&I and use the PPOR offset funds to pay for the IP principal.

The saving you'll make on your IP interest would be more than the interest you’d save by keeping the IP principal repayment in the offset.

- e.g. 500K investment loan IO @ 5%. If converted into P&I, same loan @ 4.5%
- interest saved by converting IO to P&I: 0.5% x 500K = $2500/yr
- repayment of IP principal: $8000/yr
- keeping this repayment in the PPOR offset @ 4% would have saved only $320/yr
- tax not considered here.

 

Talking about reduction of PPOR P&I debt... that's what investors facing future borrowing capacity ceilings or P&I conversions need to focus on in order to defend against those challenges

Not important for those with very mature, high yielding portfolios
Not important for those who have already paid off their PPOR or who rent
Not important for those on very high incomes
Very important for everyone else. The single best thing they can do to either improve future capacity or insulate themselves against I/O reverting to P&I.

How to achieve accelerated debt reduction is the question... obviously you need more income to be available for the job. This means that you can;

earn more income from salary. Its a very low wage growth environment for most though
earn more OT or shift allowance or bonuses, but most banks are now shading that income source, so generally only 70-80% of it can be used for servicing
increase your rents. But again, banks shade that income source at between 70-80%
strike gold, oil or a lottery win.
purchase cash cows.
sell


What isnt changing is that expenses are on the rise and will keep rising - ANZ are adding 30bpts from next Friday and others wont be far behiond.... and thats before P&I comes a calling.

The counter balance isnt happening though. Salaries are flat. rental inflation is flat.

So to me, cash cows remain the best option to even the odds and improve your lot. Lottery wins, gold or oil strikes aside , of course

#cashcowskilldebt #decadetodeleverage

 

Yes it could be Truong. Storing large sums in offsets actually costs people money these days.

 

Truong, I was thinking of this same strategy. If you do burn through offset funds, what's stopping you from redrawing against your loan and topping them up again?

Terry, are you referring to missed opportunities by storing large sums in offsets?

 

Well offsets hurt serviceability. If the offset is on the main residence loan it not only hurts servicing it costs more in interest,.