Loan Tip: Ticking Time Bomb of Interest Only Loans Expiring

Awesome.......smells like opportunity...particularly for people who bought a Sydney property for 800k and get 600pw week rent.....

 

Would it be a wild assumption to say that the banks would advise their broker networks and give a small window of time of changes in such policies of this rollover process/ qualification period?

I'll double check with him on Monday. He works for an external arm of CBA all business is based on his continued performance.

 

Lenders announce some changes in advance - Suncorp are putting up rates on owner occupied loans soon for example. But generally not with changes to servicing calculators.

 

My guess is that this may change the landscape in 2017 for property.

I can not recall the report but basically one of the triggers for slow down in Syd and Melb markets was a rise in interest rates. We have not had a variable rate rise, but nonetheless this is a rise.

Interesting times, we will see.

 

Some things we receive the heads up about and windows to have them resolved through formal communications. Likewise if you become known for being high volume/niche types bank BDM's may touch base - I generally have some of the lenders I work with a lot with investors calling to give the heads up on changes before they're formalised weeks/months later, which gives us time to plan.

In terms of interest only rollover changes, this is a post settlement change and very unlikely they would give notice of the change (to any meaningful degree anyway), as they wouldn't expect many brokers to notice or care outside of our niche little world that is property investment lending.

 

I actively ask every few months to make sure they remember me if they ever hear whispers

 

The rumour mill is rife in the industry, my CBA BDM + Advantedge lender always ask me how I get info on the changes before them.

 

Westpac
New applications-Tick
New valuations-Tick
No extensions-Tick
Refinance option to extend lifetime of loan only-maybe,if you still qualify
Letter from the lender-1 month prior to the expiration date-Tick
Re evaluation of your position- a 45 day 'leniency" to pick yourself up from the floor- Tick
Knowledge of what can and can't be done by the managers- 50%-we are "trial cases".
Funtimes. I wonder if they will give us a loan to buy food?

 

Westpac interest rate offer-4.56% P&I--wow,thanks.

 

Time to look at other options, you may be able to extend out with another lender.

 

Lenders do give heads up to brokers about upcoming changes and allow some prep time to work with clients. Re pricing changes, given the market sensitivity, its rare BDMs know the details of these before they actually occur (or not too long before).

Nonetheless, with policy oriented changes, strategic brokers who pay attention to the marketplace can forsee what is likely to happen at a market level. Its a bit harder to do at an individual lender level as data and information can be more tightly held here. For example, ASIC had a detailed review of interest only loans in the marketplace. Since that review began, the share of interest only loans has decreased. CBA have announced minor changes to their interest only extension process and timeframe. Another example was the the original APRA changes that started to play out in May 2015. APRA told everyone what they were looking to do at a market level in a speech in December 2014. That gave people 6 months to prepare and get going.

Banks and regulators are communicating with the marketplace regularly - its about unpacking what they're actually saying and how this may flow through to property investors.

 

Thank god I locked all my resi into IOs for 15 years at start of this year.

 

@ 40-50K per million owed.

 

6. As the PPOR loan decreases borrow against this at owner occupied rates and use this to pay off investment loans (refinance). as in
Strategy: Borrow Against the Main Residence for an Investment Loan (Shuffling Loans Around) Strategy: Borrow Against the Main Residence for an Investment Loan

7. Related party loans as an emergency measure

 

its just over 5 years since I wrote the opening post in this thread.

Those with IO at that point would be just reverting to PI now. I guess the much lower than expected interest rates will ease the pain of the reversion to PI and the bomb seems to have fizzled.

Anyone with worse cashflow now than 5 years ago?

 

The media hype around the crash this was going to cause reminds me of Y2K.

 

To be fair , plenty of people who were forced over to P&I over the last few years could have been under much more pressure had rate cuts not come along …. It’s more good luck than good management that many investors with inadequate yields have survived the post APRA era without some more challenges to their holding costs

The structural issues around holding costs haven’t disappeared. lots of investors are still operating portfolios that aren’t capable of sustaining P&I in a more normal rate environment , and that is potentially disguising a future time bomb for them if they don’t use the current environment to make hay and pay down some debt, and if rates actually rise in the next few years …

on the other hand - if rates stay low for decades the bullet has been dodged

 

Say your 500k property is worth 800k. I guess if you have borrowing capacity, you could reborrow to get back up to an 80% lend, with that money, use a large portion for shares, let the shares throw off dividends to help. Ok, you have a bigger loan, but then again, your assets are also worth a lot more…

 

If you have borrowing capacity you are able to refinance and avoid P&I - no need to take on extra debt to service the original debt. It’s the people without borrowing capacity to refinance who are at risk of a P&I reset . Ultimately they have rolled out of IO and into far far lower P&I rates than they would have , if not for the rate cuts . So the pain of 50% higher repayments has been largely avoided by most . And as long as rates stay at current levels they will likely be able to continue to avoid that painful reset for a while yet , until age and lender policy about remaining loan terms / age , force them to migrate to P&I . It’s almost inevitable for everyone - eventually , but it could be years away …So they should still make hay and pay down debt . But obviously if rates nudge upwards sooner rather than later the risks increase back to where they were a few years back and if they haven’t retired much debt it could get difficult . For those who have had their borrowing capacity “saved “ by the reduced rates and reduced floor rates , increases in both would also have the potential to stop them being able to refinance IO terms …. So they shouldn’t be complacent and they shouldn’t assume they can continue to access IO indefinitely - in my view it’s prudent to be taking advantage of the low rate environment to get ahead on repayments , because it’s not a certainty that this environment will last and last and last.

 

Yep the last loan ticks over 1 July. Without a doubt it’s the low interest rates that have made the difference to our cash flow.