P&I loan terms - how many years?

Does anyone know what the typical P&I loan term is these days?

I have only ever been on IO loans so am unsure. Speaking with some FHB's tomorrow and want to give them some info about it.

Thank you!

 

25-30 years.

 

Is longer duration better, ie lower repayments and therefore better for serviceability?

 

Almost always 30 years.

 

Thank you , @Kinnon Bell

Great Quesiton @D.T.

 

Thanks Pete!

 

Yep the longer the better because of lower minimum repayments. You can always pay off extra or pay out early without any penalty with variable loans.

 

Longer P&I, mostly yes. Repayments are amortised over the remaining period so the longer the period the lower the repayment therefore the lower the commitment.

That's why long IO terms can hurt people as say if you have a 10 year IO period then the full debt repayments are amortised over 20 years.

 

What do you mean, @Kinnon Bell

 

About what, sorry, Lisa?

 

I didn't understand what you are saying here @Kinnon Bell

 

One can just refinance to another lender for 30 years after a 10 year IO period? Or are there restrictions

 

If you meet the lenders requirements, yes, the talk has been that many will be avoiding renewing I/O periods.

 

If you have a 30 year loan, and then go from IO after 10 to PI and there is only 20 years left, teh repayments will be a lot higher due to only 20 year of loan left to run.

 

Ah, sorry.

When you get a loan you make a promise to repay during the agreed term. As IO loans are exactly that - interest only the actual principal owed is not being reduced so by having an IO term you are reducing the period in which the loan needs to be repaid.

Say for argument's sake you have a $300k loan which is P&I at 5% for the whole 30 year period. Your repayments will be $1,610 per month and the loan will be paid in full by the time 30 years roll around.

In another universe you've decided to utilise the IO facility on your loan and you've had 2 5 year terms. You still have that promise to repay that debt in 30 years but because the principal has not been reduced during that 10 year IO period you now have to pay that loan in full in 20 years which means your repayments would be $1,979 per month.

So a bank looks at 30 year P&I commitment as $1,610 per month and a 10 year IO and 20 year P&I at $1,979 per month.

There are ways around this such as refinancing that debt to another bank and start fresh again but then need to take into consideration of having a perpetual debt and what your end game is.

Hopefully the above makes a little more sense!

 

Gotcha! Makes perfect sense. Thank you.

 

That's ok. The "full debt amount" confused me. I wasn't sure what you meant, but I'm with you now. Thanks for taking the time to lay it out for me. My brain is awfully frazzled tonight. Two mammoth weeks....I need some rest ;-)