Servicability after switch to P & I

Discussion in 'Loans & Mortgage Brokers' started by CryptoClown, 20th May, 2020.

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  1. CryptoClown

    CryptoClown Well-Known Member

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    Sorry I'm sure this has been posted before couldn't find a recent post though.

    My broker is MIA at the moment. I've got 6 months left before my IO term switches to P & I but I want to start paying down my PPOR as soon as possible. Called my bank this morning and they for some reason(maybe the big guy is looking out for me) gave me a .53 discount off my variable IO term while I make up my mind on switching to P & I.

    If i switch early my repayments will be an additional $260pm. I know there are so many variables example income, LVR etc. Will this have a negative impact on my borrowing power or since its paying down debt it's considered a positive
     
  2. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    If it's a straight switch to P&I right now, it won't really increase borrowing by much simply b/c you're really close to the end of your IO term as it is. If you refi to P&I, and stretch it back over 30 yrs, you will see a benefit to borrowing capacity from the longer loan term, which = lower repayments.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    I agree with Jess

    It shouldn't change servicing at all because a IO loan this would be assessed as a 25 year PI loan. If you change now it will be assessed as a 25.5 year PI loan - and they might round it down to 25 years. but it will save you a bit of interest possibly.

    Try to go back to 30 years and then it will help. I am refinancing someone like this now and the PI repayments on 30 years at a lower rate are almost the same as the IO payments.
     
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  4. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member

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    P&I right at the start might be the difference between a tight deal working or not. It's probably not going to be the difference in buying an additional property or not though, unless you've got quite a lot of IO debt.

    If the IO period is less than 12 months to run, the servicing difference is going to be negligible. There may be other things you could do with greater effect.