IO Rate Increase and Refinancing

Discussion in 'Loans & Mortgage Brokers' started by rattler, 14th Jul, 2017.

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  1. rattler

    rattler Active Member

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    I am with Westpac for our PPOR and on IO loan (400K), and they have recently jacked up the rate to 4.68%. Its our first home, and the main reason we went with IO was with the intent to make it an investment property in next 2 years, and save cash in offset for next investment. Westpac because they offered no LMI with 85% LVR.
    Looking for an advise to pick an option from below:

    1) Try to refinance with another bank on a lower rate IO ? As prices have gone up, without paying any dollar to the principle, we shouldnt have to pay LMI.

    2) Do a split of IO + Fixed Rate P&I. Being salaried with no other asset, I can predict the amount that will go into offset of IO - and potential size of offset for next 2 years.

    3) Go low rate fixed or variable P&I. [This will save money on the interest for short term (2-3 years), but will leave us with lower liquid cash in offset to invest further]
     
    Last edited: 14th Jul, 2017
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    There are no simple answers,and its uniqie to the borrower and THEIR needs and resources.

    With many of our clients in a similar scenario as yours we NEED a part variable IO at least so we can debt recycle - the benefits usually far outweigh the spread on the rate.

    The balance many are then fixing IO for a middle term, or while moving to PI say 2 year fixed impacts cash flow, it can still work

    The other option as you say is to move Holus bolus, to a lower fixed rate lender ( use a lock rate), but that isnt that suitable for many of our clients, since many of those low rate lenders dont support a debt recycle project

    ta
    rolf
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    If full offset means you have 400 kin the offset, then dont worry :)

    ta
    rolf
     
  4. rattler

    rattler Active Member

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    I wish :) I meant account setup has ability to do full offset.
     
  5. rattler

    rattler Active Member

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    T
    Thanks Rolf. I will read further on debt recycling. IMHO option 1 is perfect at the moment for our situation, if feasible. As we wont be buying IP or making existing ppor an IP anytime soon (soon=1 year), but want to make sure I keep the structure correct for when we do.
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Your rate isn't that bad for IO but you may get slightly better given it's a PPOR- id avoid going to a second tier lender just for IO (that's where the really cheap rates are) as it's likely their rates will follow shortly.
     
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  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You could possibly fix to get a lower IO rate and then worry in 2 to 3 years.

    Or paying PI on the loan may be the way to go - you could almost save 1% on rate so the PI payments would be only slightly more than the IO
     
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  8. Marg4000

    Marg4000 Well-Known Member

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    I'd go for #3.

    You won't pay very much off the pincipal in two years, and the interest savings will probably outweigh possible future tax savings. You might not have as much in your offset, but your LVR should improve.
    Marg
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    And if you are only wanting to invest further paying down debt means more equity which you could potentially borrow against.
     
  10. rattler

    rattler Active Member

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    Thanks Terry. Sound advice - only pitfall is that the more I pay against this PPOR - less I would be able to claim against interest payments when we make this our first IP. But I guess you cant win at everything. I will try to lock down fixed IO for 2-3 years if I get a better rate; if not will go PI. Thanks.
     
  11. rattler

    rattler Active Member

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    Thanks. Agree. Would only switch to other lower IO with 2nd tier, if I can get fixed for 2-3 years.
     
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  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A strategy around this is to buy the PPOR now, and rent it out. Paying PI will be giving you a nice nest egg which you can later borrow against to invest.
     
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  13. rattler

    rattler Active Member

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    Thanks.
     
  14. dabbler

    dabbler Well-Known Member

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    I do not know what you had in mind as second tier, if you mean Suncorp & Firstmac etc, they have good options and fixing ability, if your Talking Liberty and Pepper, they may have no fixing option or very clunky.

    PS your 4.68 rate is not bad.
     
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  15. LoanSharkJR

    LoanSharkJR Well-Known Member

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    I wish I had 4.68% (but my ppor is paid off) so good luck with your next step...
     
  16. craigc

    craigc Well-Known Member

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    Can get lower fixed IO for 2 years if you apply with Westpac today but changes tomorrow!
    Note though that I was advised no offset against fixed IO rates with Westpac.
    Suggest Maybe a split - some fixed & some variable that you can build up offset over next 2 years as deposit before turning PPOR to IP.
    Good luck!