What Now! Interest Only Finishing.

Discussion in 'Investment Strategy' started by miscg, 7th May, 2019.

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  1. Redom

    Redom Mortgage Broker Business Plus Member

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    Firstly, you're not the only one experiencing this, many Aussie borrowers who bought/refinanced during the boom are facing this now.

    Assuming valuations are OK and you're sub 80%, it will essentially come down to your serviceability. You'll be in one of three baskets once you test this:
    - Can refinance with your existing/mainstream lenders. Good serviceability
    - Can refinance with aggressive lenders. Good enough serviceability, but may pay a little more on your debt.
    - Cant refinance at all - seek alternative strategies.

    General flow chart below.

    Interest only lending options flow chart-02.jpg
     
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  2. MTR

    MTR Well-Known Member

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    Depends on how the asset performs over xx period......how long is a piece of string type of question
     
  3. MTR

    MTR Well-Known Member

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    ...... its going to impact on many investors, even if you knew playing field was changing..... as some factors are out of your control ie market conditions, valuations
     
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  4. Chicken or Beef?

    Chicken or Beef? Well-Known Member

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    None of that is going to set the world on fire over the next 5-10 years IMO. I would be selling up and funneling the freed up funds towards my sleep at night factor.

    You can take that as advice.
     
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  5. MTR

    MTR Well-Known Member

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    Its way too broad???
    Even if you planned..... Its whether investors can offload, if holding in markets such as Perth, very likely investors will lose money ..... and whether they can sell. Brissy, Adelaide could be similar story
    Refinancing may also be off the table ?? valuations??
     
  6. MTR

    MTR Well-Known Member

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    Good advice
     
  7. Chicken or Beef?

    Chicken or Beef? Well-Known Member

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    Shhh... I could ged sued.
     
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  8. David Shih

    David Shih Mortgage Broker Business Member

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    Definitely like others said, seek guidance from your broker and work with him/her to closely map out your options. Don't need to push the panic button as yet.

    I think your main challenges will be:
    1. Serviceability to extend IO or refi - this is where your broker may need to look at moving you to non-conforming lenders. In general they're easier to service but do have higher rates - but you'll still end up paying less than the P&I cliff.
    2. Valuation may come in short - this is where if you have some savings available and val didn't come in too short, then you may want to elect to pay down some of the debt in order to move to another lender.

    Have had a couple of these scenarios where IO period is coming to an end but most of them isn't as bad as how it was previously stated by the media.

    Cheers,
    David
     
  9. mikey7

    mikey7 Well-Known Member

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    Not sure I understand your question. Was that directed to me or the OP?
    The ones I mention had some serious concrete issues.
     
  10. Shady

    Shady Well-Known Member

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    I was trying to think of the units and could only think of the ones behind Maccas or the older ones beside Maccas up Windsor Rd. Didnt know of the concrete issues though ..
     
  11. albanga

    albanga Well-Known Member

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    And who doesn’t love a good flow chart!
    P.S - You missed an option, quote taken from Homer Simpson and slightly modified.

    "During the switch, I'll hide under some coats, and hope that somehow everything will work out."
     
  12. MRO

    MRO Well-Known Member

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    Sell one of them and give yourself some extra capacity in case business cashflow reduces further.
     
  13. miscg

    miscg Active Member

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    Thank you everyone for your help, I think I will just refinance at a slightly higher rate and keep all properties. This brings down holding costs back to pretty much neutral again. Not really keen on selling unless I had no other option.

    Thanks again.
     
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  14. skater

    skater Well-Known Member

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    Something that many overlook.

    Agreed, and if the Kellyville one was during the boom, then it's not going to value up.

    I'm confused here, because you said

    I don't see how refinancing at a higher rate is going to BRING DOWN HOLDING COSTS. Your first post suggested that you were in dire straights.
     
  15. miscg

    miscg Active Member

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    Hi correct 4 loans all switching to p and I would increase my weekly expenditure by approximately $600. At present they are neutral / positive (ex tax) as they are interest only at about 4.5 %. If I refinance at 5.5 percent weekly costs would only increase very minimal keeping neutral or at worst case short roughly $100 per week across 4 properties. Not around $600 like the p and I situation would have caused.

    Part of the issue was also that bank is basing p and I over 25 years.

    All properties were purchased pre-boom or right at the beginning so I wouldn’t take a loss on any at this stage. My preference is to hold because my ultimate goal is to have these properties after I turn 60 (14 years away).
     
  16. sash

    sash Well-Known Member

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    Here is what I would do:

    1. First work out how much each cost. Which one costs the most to hold?
    2. Which one has the most maintenance.
    3. Which ones has the lowest prospect.

    My personal opinion is that you will need to sell one...by doing this you could potentially reduce your stress significantly.

    Here is an example:
    Property one - 500k value loan 360k ....P&I payment 23k other expenses 5k...rent 24k per year
    Property two - 450k value loan 300k....P&I payment 20k...other expenses 6k...rent 21k per year
    Property three - 400k value loan 300k P&I payment 20k....other expenses 6k...rent 20k

    Current situation total rents is 65k.
    Total expenses (interest and other expenses) - 80k.

    By selling property 3...you will reduce your debt (after 10k in agents costs and assuming you do not spend it)...to 550k. Your rents will now drop to 45k...and expenses to 11k..and repayments will drop to about to 33k. This will now leave you in slightly positive position in terms of CF

    The real advantage is now you could also potentially look at new IO rates based on less debt and not resort go higher priced lenders. Suncorp has fixed rates at under 3.89% for new borrowers....for investors.

    Good luck!
     
  17. sash

    sash Well-Known Member

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    No you can't...this is the internet...buyer beware...tell the idiot who is sayin' this....they should understand the law! As always buyer be aware and DYODD (Do Your Own Due Diligence).
     
  18. Trainee

    Trainee Well-Known Member

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    Has the lender or mortgage broker confirmed you actually can refinance to io?
     
  19. miscg

    miscg Active Member

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    Yes
     
  20. Zoolander

    Zoolander Well-Known Member

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    Ask if your bank has some nice P&I fixed rate offers. I have a couple of IOs ending in the 0.5-2 years and have switched one of them onto 3.9% P&I fixed for 2 years (was 4.49% as IO). Repayments ended up being only $100 more a month which isnt a hit. Its a nice way for banks to defer the IO cliff.
     
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