Bank changing loan conditions part-way through fixed rate

Back in March 2017 I changed two of my IP IO variable rate loans into fixed rate loans (one for 3 years, and one for 5 years). At that time, there was a lot of chatter about banks not allowing customers to extend IO loans, and making them revert to P&I, so I decided to fix the loans at that time.

While recently going through the details of all of my loans using online banking, I realised that both loans were detailed as having their newly-set conditions expiring in November 2019 - a date that didn't fit with the expiry of either the 3- or 5- year fixed rate, so I contacted the bank. Their response was that the interest rates for the loans had been set for 3 and 5 years, however they were to go from IO over to P&I after their their original IO period had expired (which, for both loans, was apparently in November 2019)!

My argument with the bank that was that nowhere in the documentation that was signed, regarding changing from variable to fixed rate, was there an indication that the IO was also to change to P&I, and more importantly, why would anyone expect that their loan would change from IO to P&I within the middle of their fixed period. Isn't that the whole point of fixing a loan - so that the repayments stay the same for the fixed period of time?!

Am I being unreasonable and/or uneducated here, or does this seem very abnormal? I've never had it happen with any loans previously. I'm still waiting for a further response from the bank, and would like to know if I have a case to argue my point. Otherwise, I'll be considering arguing for the fixed rate to change back to variable at the same time as the IO to P&I reversion - so I can work out my repayments based on the interest rate and the loan type at that point in time.

 

Every lender I have fixed with require fixed rate to tie in with or end before the expiration of IO period. But they are probably correct you fixed your rate you didnt vary IO expiry

 

Check your paperwork. If there is no mention of an extended IO date then presumably only the interest rate was changed for a fixed period.

The devil is in the detail. Sometimes it is what is NOT included that is important.
Marg

 

Typically the fixed period expires before the IO or at the same time. In theory though the IO period could expire first.

As @Marg4000 said, the devil is in the detail. If you have a broker, as them to check and explain it to you.

 

I thought fixing the rate effectively 'froze' the conditions - that is, "for x number of years, here are your repa

Thanks. I didn't realise that they were two different things ie. they could be treated separately within the loan - I thought 'fixing' was locking in all aspects of the loan.

Now I'm worried that, when they both go to P&I at the same time, we're going to be in for a whole world of hurt. And, to make matters worse, I can't break the fixed rate without incurring break costs.....

 

I've spoken to someone at the bank already, and they are 'looking into it for me'. I was supposed to hear back from them last Thursday........

 

Which lender?

 

Changing from variable to fixed is very easy and can generally be done with a phone call (with CBA you can do it online!). But extending your interest-only (in March 2017) period will generally require a full new application. Did you send them documents like it was a new application?

Quite a few lenders will let you have different fixed and IO periods. The person you spoke to at the bank probably didn't even understand this. The best scenario would be, if you are still able to qualify for the extended IO period, they let you renew it without charging a break fee.

 

Suncorp.

 

It wasn't like a full-application (where I had to provide income details etc), but there was a 5-page loan variation form that I had to fill in.

 

You may be in a bit of strife, I doubt Suncorp will let you go interest only even if you could qualify.

 

Thanks, Simon. I'm still waiting to hear back. In the meantime, I think I'm going to have to start sitting aside whatever additional funds I can in an offset account, so that in November next year, I don't have to sell anything because I can't afford the repayments.......

 

When changing to fixed rates with CBA, when the fixed term concludes will it remain in IO if the IO period has not expired? And will the same discount of the standard variable rate be applied prior to fixing?

 

Yes.

It will depend on how the pricing request was done, your loan documents will tell you the reversion margin.

 

If you are running so close to the wire for repayments, why are you sitting in the crypto threads and ASX threads talking about dropping money into stuff that you don’t seem to know much about?
Do you have a clear plan for your investing or are you just making decisions like a meerkat on watch duty?

 

Fair point, @Foxdan, and I get where you're coming from. I'm not sure how close to the wire we're running at this point - but things could change in November 2019.

The $$$ sitting in my personal ASX and crypto accounts (which actually is not a lot of $$$ at all), is money that I'm prepared to pull out and use to make loan repayments, if needed. If the return I'm getting from these is bigger than the contribution that they'd make to an offset, then I see myself as being in front (at the moment).

Also, for me, there's a big difference between long-term investing (which I do through my SMSF, and treat very differently to short-term, small amounts of 'play money' in my personal funds). I don't have a cent from my SMSF in any real high-risk vehicles, and have a good strategy in place for selecting investments.

However, for me, learning about finance, and increasing my knowledge about the types of and strategies used for investing, is an enjoyable hobby, too. Some people like to play golf, others fish, some spend their discretionary funds on smoking, lots of travel, or expensive clothes - I like to try my hand at putting small amounts of my own 'play' money into investing or possible money-making ventures/experiments. It's probably the only hobby or vice that stands a chance to actually make me some money.

 

This actually works as the cost of an inquiry is born by the bank whether at fault or not.

Maybe call ombudsmen first and they will record the query and direct you back to the bank. Ombudsmen may even give you a reference number you can pass onto the bank.