IO rules

Discussion in 'Loans & Mortgage Brokers' started by Primary341, 22nd Jan, 2019.

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  1. Primary341

    Primary341 Well-Known Member

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    Hi,

    If someone has an IP with an IO setup and offset account can they simply change banks when the IO period is due to expire in order to extend the IO arrangement?

    Why shouldn't people be able to maintain an offset account and interest only arrangement instead of paying the principal off and reducing flexibility?
     
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  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    refinancing to a new IO period is easy

    as long as

    You have the income

    and the val stacks up

    ta
    rolf
     
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  3. Redom

    Redom Mortgage Broker Business Plus Member

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    They will need to demonstrate eligibility with the new bank to do so or even to extend with your existing bank in most cases.

    This means a thorough examination of your income/expenses to see if you can pass their serviceability under todays lending conditions (among other things like valuation).

    Simply showing you've made repayments over 5 years isn't enough.
     
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  4. Primary341

    Primary341 Well-Known Member

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    Thanks Rolf.

    What sort of figures/fees can one expect when switching banks?
     
  5. David Shih

    David Shih Mortgage Broker Business Member

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  6. Terry_w

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

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    some of my friends use the term "Nanny State" to describe this situation of what they say is over regulation.
    Nanny state - Wikipedia
     
  7. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Assuming there's no LMI involved and you're not breaking a fixed loan contract...

    The exit fees from the existing bank.
    The state government mortgage registration fees.
    The entry fees into the new bank.

    It usually costs between about $600 - $1000.
     
  8. Primary341

    Primary341 Well-Known Member

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  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    in some unusual cases where there is no LMI involved, you can come out ahead :)

    ta
    rolf
     
  10. Primary341

    Primary341 Well-Known Member

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    That's right.

    I can understand the regulators want to reduce risk in the system, but why can't there be flexibility to allow those who have a good track record to continue with IO.
     
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  11. Primary341

    Primary341 Well-Known Member

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    Thanks Peter.
     
  12. Primary341

    Primary341 Well-Known Member

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    Thanks Rolf
     
  13. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    for the same reason we have speed limits :)

    U can be driving a Qld rego car that hasnt had a roadworthy for 20 years

    or a brand new 5 star rated camry

    System needs to work for the lowest common denominator I guess

    ta
    rolf
     
  14. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Yeah it's possible.

    Banks are still ok with sub 80% IO investor loans.

    The main issue is whether your borrowing capacity will enable the refinance. If you have multiple properties/loans it can become really difficult due to the assessment rates banks use to calculate your existing debt (7.25%+ and P&I repayments)

    If you just have the one IP - and your income/liability situation is similar/better to when you first applied for the loan (and assuming the LVR is sub 80%) you'll probably be sweet :)

    Cheers

    Jamie
     
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  15. Primary341

    Primary341 Well-Known Member

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    Thanks Jamie.

    Would it be different if it was a PPOR instead of an IO?
     
  16. Phantom

    Phantom Well-Known Member

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    Yes, simply put - they can switch lenders provided they meet the serviceability requirements of the new lender & the valuation of the security property stacks up.

    If you have a solid track record, that's fantastic. It does help to a certain degree as you show you are of right character for a loan. But, that isn't enough. If the lender deems you cannot service the loan based on THEIR assessment (not anyone else's) then they will not lend you the funds.

    To answer your question about IO loans & why they don't just renew them for everyone - it's been one of the hottest topics in property finance in the last few years & more specifically the widespread uptake of them. The banking regulator suggested it was appropriate to slow down this uptake and hence put a proverbial 'lap band' around them (via instruction to lenders whom managed this restriction through bank policy) to keep them at acceptable levels. This has since cooled down but many lenders have stuck to their guns especially regarding the renewal of IO terms.
     
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  17. Primary341

    Primary341 Well-Known Member

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  18. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    It’s possible but difficult - lenders aren’t keen on them
     
  19. albanga

    albanga Well-Known Member

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    Would say this is becoming more common and I imagine will become even more predominant as lenders try everything they can to attract new business in the new lending environment.

    And hey if the banks don’t give you a cash back then just listen to Barefoot and ask the broker to foot the bill from their comms :p haha
     
  20. FXD

    FXD Well-Known Member

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    How much consideration do lenders give, if at all, to IO loan with offset which consistently have
    large chunk of money sitting there throughout the IO term before expiring when time comes to
    assessing extending the IO term upon borrower's request?

    Will similar consideration be taken into account for re-financing IO loan by the new lender with the
    agreement/expectation that the chunk of money will be moved to the new lender IO offset?

    I am talking about cash in offset equivalent to around 50% of the IO loan limit.

    Thanks,
    FXD
     

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