How will you deal with the rollover of your IO loans into Principal and Interest payments?

There is a lot of speculation about how the rollover to Principal and Interest payments will affect investors. Curious to see how members here will respond.
I expect to have to sell one or more properties within the next 3 years.
Could probably hold out and not sell for a number of years with the buffer I have, but would prefer to keep a big buffer.

 

Yes...but indefinitely. Paying IP loans down is counter productive (for me).

 

I suspect many of the responses you receive will be from people in denial about what is coming their way ....

Ask again in 12 months, when the P&I migration is hitting its stride and people have been rquired to find the extra money for several months in a row...

 

I'll extend it where it makes sense and is possible - still two years away and a lot can change. Plan for the worst and hope for the best - I think it is less than likely that this will drive financial ruin in the end.

The complexity of interest rate plans is driving me crazy though - it is worse than an electricity plan. PPOR(P&I), PPOR(IO), IP(P&I), IP(IO) plus fixed/variable permutations.

Who knows what is out there.. 40 year mortgages?

 

I only have one IO loan left but I am thinking of switching to P&I 2 years early for the lower interest rate. I have the rental income to cover the repayments, so why not?

I won't be selling anything. Actually, I will be looking to take on more debt in 2020 if the right deal comes along.

 

Definitely would not want to be forced to sell a property in Sydney at the moment.For a market that has often been described as indestructible, it seams to have some underlying problems.
Domain are tonight(14/7) reporting a clearance rate of 48% with many auctions consisting of just one bidder, with others unable to get finance.

 

I've opened the poll with the option for people to change their responses, so might bump up this thread again in 12 months and see if anything changes.

 

Im already there but exploring options with my bank/s. They'd rather not see me sell so thats a good start.

 

Cool. In 12 months I suspect there will be a lot of readers who are currently convinced they are going to find things relatively easy , who will instead have received a bit of a rude reality check.

Might be worth adding a supplementary poll in 12 months or so, asking... who wishes their last purchase had been high yield so they could have started on debt reduction several years earlier? / who wished they had sold something low yield and replaced it with something high yield so they could have started on debt reduction several years earlier? or something along those lines....

 

The Perth investors who bought at the 2014 peak and will come off their first 5yr IO loans in 2019 may be in for a world of pain. Those that bought in 2013 would already be in it. Simply because even if they wanted another IO term their asset is now worth 10% less (some more) and rents for 10% less (some more) so valuations and serviceability will struggle together with the APRA screw downs. So they if they don't want that scrutiny on their IP they will need to roll over and go P&I. Thankfully if they have only had one IO term their P&I rates on the remaining 20yrs won't be as bad as rolling onto a 15yr P&I.

People in other states should heed this. Markets go up and down. Leveraging to the hilt during booms is high risk.

Personally I'll be ok. My "cost" of IPs is less than most buy and holders as I've generated equity and value via developing so my wholesale yield is higher.

 

With 62% of the property investors being able handle principal easily it does not seem like a current problem

 

In 23 years of property investing I've never had an interest only loan on property (on shares yes). They are an Australian speculative quirk that should be phased out completely.

 

I'd be surprised if you aren't on the money here. Something to remember too is a lot of users on this forum are more savvy than your average investor. If 60% or so here are feeling comfortable, that doesn't mean your average newbie or mum and dad investor will be, and part of the problem with the recent boom is it's attracted a lot of inexperienced investors generally. I've spoken to people who haven't even realised they were on IO loans. The rude shock potential is definitely out there.

 

I've got one rolling to P&I next year. It's in lmi, so I'll debt recycle part of my PPOR loan to bring it back to 80%, then refinance it back out to 30 years with a new IO period.

 

Would have probably acquired more if you went IO. Dont hate the player, hate the game. Oh wait...

Anyway right or wrong, I don't think property investing 'works' with P&I.

 

IO works well in rising markets, but can be devasting in areas that see very little growth for an extended period , after 8-10 years many start to seriously question their strategy, especially when they have never even touched the principal .
Our last investment will be paid off in less than 10 years, almost time to start looking again, just need the market conditions like after the GFC and there is always someone that has bitten of too much with one of the lenders of last resort.
Many are still in denial about all the recent changes , and the RC has not even handed down its findings yet , which may or may not bring more heartache for those with little understanding of risk.
Take investors(and/or finance) out of any market and it will flatline for a long time, which in turn makes negative gearing almost redundant
Especially when they have based their purchasing power on the the IO monthly payments and the banks suddenly rewrite the rules and the next lot of investors can only borrow 80% of what was previously available.

 

Another cautionary tale from the Perth experience:
Brother in law reached the end of his 5 year IO period recently. At the outset the property was negatively geared (excellent, a big tax return) and over that time, the rent dropped 25% (even bigger tax returns!). The higher repayments on rollover to P&I were not doable so he had to sell. He bought the place for $395K - sold it for $355K which paid out the loan but didn't cover the agent's commission. He won't have to pay capital gains tax for years!