Offset account mortgage changed to P + I from interest only

I am trying to get my head around what has happened with a mortgage I have with First Mac. It is a 30-year $300,000 loan with the first 5 years being interest only. I managed to pay $200,000 into the offset account from the sale of another property during this period and my interest in now just over $400 per month.

Now that 5 years has passed the mortgage has become principal and interest but they have calculated the repayments based on the original $300,000 loan amount so the repayments have now jumped to $1700 per month (which is unsustainable by me from a cash flow perspective). They have "kindly" offered to split the repayment between my bank account and the offset account so that $400 comes from my bank and $1300 comes from my offset account but then I will have to pay extra interest on the $1300 each month because it is not being offset. At this rate, if I don't redraw, the mortgage will be cleared in 5 years which is ridiculous for a 25 year mortgage. I asked them to reduce the amount I can draw down from the offset account by the amount of principal I have to repay each month but they weren't interested in doing that.

So it feels that I am having to pay interest on my own money when I repay the $1300 principal every month.

Any ideas?

 

Everything you've described is fairly normal behaviour for an interest only loan converting to principal & interest repayments.

About the only thing you can do about it is refinance to another interest only loan. If Firstmac won't do this for you (which wouldn't be surprising), you'll need to move to a different lender.


This does all raise the question. Why do you want to stay on interest only? Given you're not really paying any interest as it is it can't be for tax purposes. If you've set aside the money for something else, then what's stopping you from implementing that? At the end of the day, paying off debt isn't a bad thing.

 

Repayments based on original loan with pi

 

Yes Y-man. I think you are correct on the interest because they take both accounts as one so I suppose this must drop the available draw down. They didn't say that to me.

 

It's useful to have the funds available and I do have another project I am looking at.