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Interest only and refinance

Discussion in 'Property Finance' started by sage99, 8th Sep, 2015.

  1. sage99

    sage99 Member

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    Just after some advice on IO loans. A lot of banks offer say 10 years IO, once you have maxed out the 10 year period with one bank is it possible to just refinance in order to get another IO period with another bank (assuming you meet their criteria)?
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Just ensure the loan isn't crossed up with another property and/or fixed....that can cause problems.

    Cheers

    Jamie
     
  4. Redom

    Redom Mortgage Broker Business Member

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    Yes - for now you can, but in 10 years the answer may be very different!

    IMO it is a matter of time before some form of interest only crackdown hits the market.

    If i'm the regulator (thats how i based my previous lending market predictions) - this type of transaction needs to stop. Its a pretty big systemic risk if there's no repayment of principle on loans as it essentially means people are relying on price growth. Thats a big no no in 'design a prudent financial system - 101'. Separate issue to the 10% growth cap on investment lending, more a structural fix. Other countries have already implemented/have tighter rules on I/O loans.

    Cheers,
    Redom
     
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  5. chylld

    chylld Well-Known Member

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    What if the system were 80 LVR max, annual valuations with immediate call-in? If I had to manage an IP under those circumstances I'd keep LVR at around 70-75...
     
  6. Redom

    Redom Mortgage Broker Business Member

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    Haha you'd have a massive housing market crash i would think. The beauty of property is that it allows leverage and security. It becomes more like shares with this approach.

    I/O crackdown is just responding to a big growth in these type of loans, particularly in O/O.

    Probably a large result of taxation policy incentivising different behaviour to financial market policy.
     
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  7. jaybean

    jaybean Well-Known Member

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    That would be terrifying, margin calls applied to RE. What are the chances Redom?
     
  8. Redom

    Redom Mortgage Broker Business Member

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    0-1%. Not going to happen from a regulatory front.
     
  9. jaybean

    jaybean Well-Known Member

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    What about the chances of them eliminating IO altogether for investors?
     
  10. Redom

    Redom Mortgage Broker Business Member

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    Also not going to happen i don't think, but the chances of it are higher - 2-5%?
     
  11. jaybean

    jaybean Well-Known Member

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    Ok thanks, that's a relief:)
     
  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Zero chance of LVR based margin calls on property. Aside from being a disaster for borrowers, it would also decimate the banking system.


    I don't think that IO loans would be eliminated, but they could come under further regulation and oversight. Imagine having to seek (paid) financial advice just because you prefer an interest only loan. There is a reasonable chance that this could occur in the near future.
     
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