Oh, crap!

I think I may have made a bit of a rookie mistake!
I just moved my loans totalling $1.52M (which had an IO period that was expiring next month) from 4.14% IO to 3.89% P&I.
I did the calculations and while I knew I would be down a little bit, I didn't realise that the IO period reduced the life of the loan. So now instead of it being 30 years, it's only 24 years, meaning nearly an extra $12k per year in P payments!
I had not budgeted for that!

Is there any way of getting the life of the loan bumped up to 30 years again after fixing it? It's St George.

 

Not without a new assessment, and possible break fees. Whoops!

What's your borrowing capacity like? (Break fees should be minimal if you do it quickly.)

 

Unfortunately we have one extra mouth to feed in the way of a newborn and are one salary down while my wife is on unpaid maternity leave. Plus we've got 10 IPs at a reasonably high LVR, so anything that requires reassments is pretty much out of the question.

 

You may be able to make use of their 'repayment holiday' - this can be for up to 12 months.

 

No can do getting a longer term without reassessment - so you'll have to absorb the increased repayment amount. On the upside is if you can take on that cash flow hit, when your personal income situation improves you'll be in a great situation with your debt eroding at an accelerated rate.

 

Oh well it would have happened anyway, you have just brought it forward a bit, and by doing so you have probably lowered the repayments by finishing the IO period a bit early.

 

Thanks guys.
Yes, we can absorb it for a minimum of three years (assuming worst case scenarios) at which point my wife will hopefully be back at work three days a week and then it won't be an issue.

All up it's around $35k a year in principal payments.

 

very true

 

It's where you all move to Bandung and live off $5/wk while working via the internets.

 

Splugely considered borrowing to make part of the repayments? Could be an option if you run into cash flow problems and have an unused LOC laying around/

 

thanks for the reminder, I would not have known,

I was going to ask the bank for repayment amounts and had it increased too much depsite a drop in IR, I may have questioned it!

 

No LOC, plus as I understand it, that would then make it a non deductible loan anyway, right?

 

No.

 

On the brightside, you'll start eroding some debt. Nothing wrong with that

 

Im a touch confused. If he had the capacity to do this , he would be borrowing more than he already owes, and if he has that sort of borrowing capacity he would surely have the capacity to do a dollar for dollar refi to a new 30 year P&I term , no?

 

I think he meant the OP might have an undrawn LOC or similar to draw on. Not new borrowings.

New borrowings are possible in some circumstances.

When I hit the serviceability wall, and loans reverted to P&I I refinanced one security with a low doc loan. This equity release gave me some breathing space until my serviceability improved.

Never a great idea to borrow money to pay back money, but it worked in my case. I justified it to myself as my overall equity didn’t change. I was just transferring equity from one property to the others via principal payments.

 

I think he's PAYG not self employed... and I imagine if he had a Portfolio LOC he would be better advised to close it and reduce his assessable debt and refinance the debt ( or some of it at least ) that he is saying is likely to take him over the cliff in 3 years time .... Depending on LVR, a good deal of the sub 80% debt may fit at Liberty or Pepper right now. Rate is higher sure , but a new 30 year term with the first 5 years at IO would still be far less expensive than a lower rate over 24 years P&I . Even at P&I over 30 years with those lenders he'd be ahead . If his wife returns to work in 3 years he can pop back over to a mainstream lenders then. Its all about managing cash flow and holding costs...

yet another reason why everyone who isnt going to be comfy paying all their debt @ P&I over 20 or 25 year terms should be sticking at least one cash cow in their portfolio as a hedge .

 

Myself and other brokers have been writing about this daily for over 2.5 years.