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Does fixing an IO loan revert to P&I even if the fixing period ends before the IO period?

Discussion in 'Property Finance' started by jaybean, 11th Aug, 2015.

  1. jaybean

    jaybean Well-Known Member

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    I have 3.5 years left on an IO loan (Bankwest). I'm looking to fix it for 3 years as they don't allow for partial periods. On the fixing contract they sent me, it says:

    "After the fixed interest rate period there will be 308 monthly repayments of principal and interest"


    So does this mean I effectively lose 6 months of IO?

    I'm now worried...I fixed 2 other loans - Macbank and AMP - under the same circumstances (just under 4 years remaining, but fixed for 3)...does this mean I've effectively shot myself in the foot and lost 6-9 months of IO in each loan?


    EDIT: Ok this is getting even more confusing. They sent me two contracts...I thought the second contract was just a copy of the first for my records but it isn't.

    The first one is called "3 Year Fixed Interest Home Loan Contract".

    The second one is called "3 Year Interest Only Reverting to Principal and Interest Repayments Loan Contract".

    Is this normal? Why did they send me that second one too?
     
    Last edited: 11th Aug, 2015
  2. tobe

    tobe Well-Known Member

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    yes, most lenders want the fixed period to line up with the I/O period. For a lot of lenders reloading an I/O period is no big deal, but lenders can change their policies, and it seems like I/O is one of the things APRA is batting for, so I wouldn't count on it being easy to roll over to another I/O period in future.
     
  3. jaybean

    jaybean Well-Known Member

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    No I'm not talking about rolling over to a new IO period. I'm talking about keeping the little bit that you have left.

    So if I have 3.5 years left, does fixing 3 years mean that I lose that 0.5? When I come out of it, do most banks automatically put you onto P&I?
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    It appears that your contract is saying that after the 3 year fixed period, your payments will automatically revert to variable P&I repayments over the remaining loan term.

    Loosing 6 months of I/O repayments is hardly a problem, it's barely a blip on a 25 year amatorisation schedule. If you planned to renew your I/O period, you just need to do that 6 months earlier.
     
  5. jaybean

    jaybean Well-Known Member

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    Is this normal or unique to Bankwest? I'm now worried about the loans I just fixed with AMP and Macquarie...
     
  6. tobe

    tobe Well-Known Member

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    Yes. Fixing for 3 years means you lose the remaining 6 months I/O.
     
  7. tobe

    tobe Well-Known Member

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    It's common to most lenders. Their systems can't handle more than one variation/term. Fixed period has to line up with I/O period.
     
  8. jaybean

    jaybean Well-Known Member

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    I just called AMP and Macbank and they both said I would still get to keep my remaining IO period! Thank god, because it would have meant losing 22 months with AMP (fixed 3 years with 4 years and 10 months to go) and 6 months with Macquarie on $1m of loans.

    Phew. Alright lucky I was so thorough with the Bankwest contracts, I think I will keep that variable...
     
  9. tobe

    tobe Well-Known Member

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    great news, so when you fixed with AMP and Macbank you didn't get a new loan offer to sign (like bankwest)?
     
  10. jaybean

    jaybean Well-Known Member

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    Nope which is why I was so worried. I thought I had agreed to something without being explained everything first. Macbank was just a simple phone call. AMP required a letter. Both were straight forward. Bankwest was the only one that sent out contracts to sign.

    I'm so glad I read through all the contracts, I know many that just blindly sign the dotted line!
     
  11. sammmeee

    sammmeee Well-Known Member

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    i just got an email back from AMP
    "
    Please also confirm

    -Are all loans to be re fixed for 3 years interest only? If so we will need to extend the interest only term on loan account XXXXX as it is due to expiry on 6/10/2015"


    Does this mean I have to reapply for that particular loan or is it a simple tick and flick
     
  12. jaybean

    jaybean Well-Known Member

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    Whether it's a refinance or tick and flick is a totally different topic to what's being discussed in this thread. But to answer your question - yes most of the time you need to go through the full charade again.
     
  13. sammmeee

    sammmeee Well-Known Member

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    apologies for the hijack.
    FYI amp have said its not a new application.
     
  14. smator

    smator Well-Known Member

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    I just fixed an io loan with CommBank. Had 9 years and 7 months remaining, 5 year fixed loan, will have 4 years and 6 months remaining when I come out
     
  15. jaybean

    jaybean Well-Known Member

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    Thanks for the info.