I recently changed PPOR loan to P&I to save the .25% of interest, I have over half of the loan in an offset. My monthly repayment went from $1200 to $4700. I have no intention of selling so have decided to put most of the offset onto the loan itself, anything to consider? This will reduce the monthly payment and I should still be able to draw it down. I was also setting up 3 year fixed IO on an IP, it got nocked back to 2 years because CBA has a max of 15 years IO and that would have taken it to 16 years. It will be interesting to see what I have to pay when this goes to P&I as I'll have to repay it over 15 years and not 30.
By putting the funds into the loan this does not automatically reduce your repayments - you can only do this if you also cancel the redraw amount which will stop you being able to draw it down again. As per the IP - if possible I would have personally been looking at trying to refinance that onto a fresh 30 year term and new interest only period otherwise you might be in for a rude shock when the IO finally expires and you may not be able to refi it at that point. Don't leave it in the things to do pile - I get at least one call a week from investors with portfolios which have had all their interest only periods expire and no way out of it. The options at that point for them are to accept the new repayment or sell before the bank forces them to. (I've been seeing increases in repayments for portfolios which are greater than what the person even earns a year - not a pretty sight)
Why? If you want to keep the payment at its previous level, simply arrange to have the $4700 monthly payment taken from the offset account. Deposit the previous payment of $1200 into the offset account. This way you keep the effective payment at the level you had previously, and gradually moves money from the offset to the loan rather than transferring a lump sum. It only involved two direct debits each month instead of one, and gives you maximum flexibility. Marg
What sort of jumps in payments are you seeing? Is this because of the APRA changes? Glad I'm on P&I but I have family on IO and they own in Cairns, so I'm a bit worried they'll find themselves in a tough position when their IO runs out in a year.
It will all depend on how long the loan term is an how many IO periods have been taken, you can calculate it easily, i.e a 25 year loan with a 5 year IO period just means plugging the loan into a loan repayment calc with 20 year as loan period, or if 15 years been taken, plug in 10. To go from 1200 to 4700 means IO has been more than 5 years and loan term not long too run.
As dabbler has said - you can work it out fairly easy. The huge jumps come from investors with 5+ properties who are now having all of their IO terms expiry over 12-18 months - which when you're talking about potentially millions in debt with accelerated repayment terms can mean repayment increases by 60-90k per year.
