Current thought process - Interest Only or P&I?

Discussion in 'Property Finance' started by liverpool77, 11th Jan, 2019.

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  1. liverpool77

    liverpool77 Active Member

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    I am with SGB and one of my loans is ending its first 5 years I/Only terms and was wondering what thought process is now for rolling these over? IE are we still automatically rolling over to I/O (which I have done in the past) or are investors preferring now to go P&I?

    I have a number of loans and debt and currently have a good discount so am paying around 4.75% for investor loan interest only however the P&I rate would come down to ~4.2%.... So was thinking it may actually be worthwhile for me to let this flip over to P&I with the following thought process I would be keen to hear what others think:

    P&I Pros:
    1. Better interest rate means saving $'s on interest paid vs IO which is a higher rate (albeit total $ outflow is less for I/only).
    2. Paying principal allows loan to be paid down and improves LVR.
    3. Better risk profile from bank as paying down debt shows better serviceability.
    4. Application process easier for P&I vs I/only (note however legislation/process may change in due course meaning P&I may be difficult to get post 5 years in future?).
    Interest only Pros:
    1. Better cash flow if need funds to invest elsewhere.
    2. Tax deductions greater.
    3. Ability to have off-set account which negates portion of P&I advantage however different in interest rates of +50bps negates this advantage somewhat.
    By way of background, I have cash to service P&I and do not have any upcoming need for immediate cash hence why I thought P&I would suit my circumstances... I may also be able to get a better discount rate on this particular investment loan rate given P&I?
     
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  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Prob best to go with P&I then

    Haggle on rate - it should be a fair bit cheaper than IO

    Cheers

    Jamie
     
  3. Brady

    Brady Well-Known Member

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    I recently looked at this and best result looks like refinance loan back over 30 years P&I.

    - Gives me better rate
    - Increases my servicing
    - Minimises the P&I repayment increase

    Great to do this whilst you can IMO
     
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  4. liverpool77

    liverpool77 Active Member

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    Thanks guys, yes interesting when you look into it a bit closer....

    Brady - I think I seen in another thread you went with a fixed 3.99% rate over 2 years? Who is this with and what happens to this rate after 2 years?

    Ive seen some of the lower online tier lenders also have some good rates <4%?
     
  5. Brady

    Brady Well-Known Member

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    CBA IHL P&I 2YR Fixed @ 3.99%
    Reverts to variable with the negotiated discount now (if done correctly), if rates were to stay the same, pending many factors would expect ~4.30%
     
  6. liverpool77

    liverpool77 Active Member

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    Jamie - should the discount from the SVR be the same under both scenarios or will they likely do better for P&I?

    Note the P&I loan is 54 bps cheaper but this is just the difference between the standard P&I rate (6.46%) and the standard I/O rate (5.92%) so presume they will potentially reduce this further??.
     
  7. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Why not extend the term back to 30 years, and stick with PI. Best of both worlds as the min repayments will drop.
     
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  8. Jamesaurus

    Jamesaurus Well-Known Member

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    I am +1 for investigating this option into your cashflow analysis @liverpool77
     
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  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    if you have non ded debt, the spread with between 2 /3 year fixed IO and PI with many lenders, inc CBA is weeny...........

    refi to 30 year PI with a 2 or 3 year IO fixed is the general advice for most with PPOR debt still

    ta
    rolf
     
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