Question on IO loans

Hi all. Just wondering what people do once their three year IO terms are up. Do you negotiate with the lender again, refinance or just let it roll over to I and P?

 

The short answer is depends?
O/O or INV?
Cashflow position
Short term and long term goals
Finance position (might not be able to extend or refinance)
LMI Paid

And on and on.
If it an investment, you have no other non deductible with no plans to have non deductible and you have the capacity then I would pay down debt.

If you have other non deductible and you have the capacity then extend

 

In this instance, why is it better to pay it down rather than save a deposit for another IP?

 

In the past most people would have just rolled over the IO period to another IO period.

These days there are a lot to consider such as whether this is even possible due to servicing, or whether it is worth going IO with PI rates being much lower.

 

One possible reason is that you hit your serviceability ceiling. That is - you are unable to borrow further. With no non-deductible debt to pay down the next logical choice is to pay down deductible debt.

 

We have renewed one , let the rest go p & I. Depends on what stage your investing is up to

 

Others have mentioned above one main reason may be lack of servicing.
Another reason is the days of high leverage are behind us and the days of deleveraging are upon us. It simply is not possible to accumulate large portfolios anymore and by all accounts that is here to stay (may be some slight loosening but don't expect the glory days).

So what use to work, simply doesn't, but what will ALWAYS work in your favor is paying down debt. If you have no non-deductible debt then pay down Investment debt, its a simple equation these days.

 

Thanks for the replies. I have two IP's. Contemplating a third. The only non deductible debt I have is 90k with &50k in an offset that I can use for the next property.
I rent at the moment. I take it I'm better off trying to extend my IO terms if I'm allowed to do so then.

 

Are you ever going to move into a main residence? or one of the properties you own?

if you rent why do you have non-deductible debt?

 

We are in the process of going through the refinancing exercise for the first time with our two IPs.

We still have a mortgage on our PPOR so have refinanced both IPs to be IO again. Hopefully in another 3 year we'll be fairly close to paying off our PPOR so will reassess then. Right now we are just trying to throw as much cash at the non deductible PPOR loan to get that out of the way.

It's been a bit of a nightmare with all of the APRA stuff and has made the refinancing process actually more difficult than buying the two IPs in the first place. Hopefully in 3 years we'll be in a better position and reassess if we let them roll over into P&I and pay them down.