Interest-only mortgage reset looming: what you need to know

19 Sep 2018

ThinkstockPhotos-817726962-735x450.jpgApproximately $120 billion worth of interest-only (IO) loans are scheduled to roll over to principal and interest (P&I) this year alone, leading to an increase in borrowers’ monthly repayments by up to 40% and sparking concerns about household affordability.
 
The issuance of IO loans climbed to a high of 60 per cent in 2014, fuelled by property investors who were encouraged by the lenders to increase their borrowing capacity and claim the interest as a tax deduction.
 
However, banking regulator, Australian Prudential Regulation Authority (APRA), acted on the concerns over the high number of IO loans being written and influenced lenders to change bank lending policy to restrict the number of IO loans that a lender can hold at any one time. Since these measures were put in place, lenders are far more reluctant to roll over existing IO loans or approve new IO loans.
 
With interest rates expected to increase towards the end of next year, this jump from an IO to a P&I loans could leave some borrowers struggling to bridge the gap.

Peard Finance General Manager, Paul Hamilton has expressed his concern for Western Australian borrowers in particular.
 
“Whilst the changes from the banker regulator make sense at a macro level, it has created a significant issue for many people in WA due to the lack of capital growth and lack of wage growth over the last few years,” says Mr Hamilton.
 
“In the past many people could extend their interest only period by simply calling the bank. However, given the recent changes in bank policy, this is not the case anymore.”
 
“If you are currently paying interest only repayments, you must ask yourself, if my repayments increased by 40 per cent tomorrow, could I still afford to maintain my standard of living? Unfortunately, this is the reality that many people are facing, with little notice from their bank.”
 
“My advice to the community is to get ahead of the game and speak with an experienced mortgage broker so that they can explore your options. This may include re-financing the loan to another lender, re-amortizing the loan with principal and interest repayments in line with your cash flow or preparing your house to sell so you can pay out your loan.”
 
Time is of the essence when it comes to your home loan. So, take control of your finances today. Our trusted team at Peard Finance are just a phone call away and can help you gain a deeper understanding of your options. Get in touch today on (08) 9273 8955 or click here to go to their page.

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