My Experience with Renewing I/O Only Loans

Hi All

I thought I would post on my experience with I/O loans......

1. SunCorp...renewed for another 5 years...alas this will be the last I/O only renewal. In 1 week they have okayed...did not have to do the dreaded full assessment

2. CBA...called in 1 day later have another 5 years in the kitty

I have been lucky so far...others have not been so lucky.

Care to share your experiences?

 

About 4 months ago extended with ANZ. Wanted 5 years but that would of meant full assessment. 3 years was offered without assessment so I went with that.

 

This party is soon coming to an end.

 

Yep. In the last week, APRA has issued some new guidelines. Renewal of interest only loans has been specifically mentioned as an area of concern for them.

 

Yep.....party...is coming to end...and this will in itself will put the kabash on loan approvals due to serviceability....the lenders which use actuals for calculations will probably also change their policies..

 

• In recent times, with reduced capacities allowed for I.O loans, one could request a 1-2 year I.O period with some lenders. Call the bank a few weeks after settlement and have it extended to 5 years. I doubt this will be allowed to continue - but this was only ever going to be a temporary thing in this environment. APRA's specifically mentioned this and said banks should be retesting serviceability in their new guidance.
• They have also said personal debts should have loadings (most take at actuals).
• Also noted negative gearing only makes sense at current rates (St G & Firstmac - have good calculators because they take it at 7%).

http://www.apra.gov.au/adi/PrudentialFramework/Documents/APG-223-Response-to-Submissions-letter.pdf

 

So worst case is they refuse to renew IO and make you go PI... would they call in the loan if they think you can't service?

 

They won't call it in.

Your repayments shoot up, by up to 40%.

Its up to you to manage your cash flow to cover this.

Realistically, it'll force you to deleverage over time, if holding multiple assets that all roll over simultaenously.

 

That's ok then, nothing wrong with reducing debt as long as you're not forced to sell !!

 

If you don't have any other non deductible debt, sure!

 

Yes ...they won't call it in if you don't default....the issue is after 10 years of interest only...on a 250k loan you are paying about 870pm.....but after the interest only period you will be paying around 1450pm....that is a massive jump...about 480pm or around 6k per year. Hopefully your rents have jumped 120pw during that 10 year period...otherwise you will be feeling the pain.

Not many people of think of these things....

 

I am 3 years into my first 5 year IO loan. Should I renew now for 5 years where possible or wait another 2 years?

 

Following this......

 

Extend if you can. In 2 yrs it's very likely you'll need a full assessment.

 

Yes i got caught too after many many years of interest only bank said i needed to moved to principal and interest ...(my principal is $96k pm! )

 

That would be painful.........

 

Yes but my debt is going down like a lead balloon and profit is going up like a rocket.......when the debt is fully paid i will struggle to spend even a fraction of the profit

 

Will get onto this asap.

Say I can't extend the IO loan now without a full assessment. With interest rates looking to increase for investors in the future, would it be wiser to do the full assessment now or later (2years)?.

 

Do it now - if servicing is tight now there's still options which may or may not be there in the future.

 

I agree with this ....I don't know how long they will allow I/O extensions without a full assessment.......things are changing.

As I said before this in itself will clip the wings of investors.....add to the recipe...rate increases (both out of RBA cycle by banks) and RBA rates...and you have a bad situation for loans.

This should provide boon for cheaper capitals like Brisbane..Adelaide...Hobart....Outer Melbourne..Geelong.

Sydney could have a hard landing..particularly if a overseas investor tax via increased stamps and land tax is introduced.