Nearing The End Of The Interest Only Period

What To Do When You’re Nearing The End Of The Interest Only Period

It pays to plan ahead and get ready for when your interest-only loan payments come to an end.

There was a time when interest-only loans were primarily used by residential or investors however over current years, some property owner have also taken out interest-only loans.

The appeal of interest-only payments is that the loan payments are lower than with principal plus interest (P&I) repayments. That’s because you’re not paying off any of the loan balance.

The disadvantage is that loan providers only permit interest-only payments for a set duration, typically five years and at some phase crunch time will come when your lender gets in touch to say the interest-only duration will end. As a result of the past growth in interest-only loans, the Reserve Bank of Australia (RBA) estimates that around two-thirds of these loans might reach the end of the interest-only duration by 2020.

If you’re making interest-only payments at present it is necessary to begin preparing ahead to know the choices offered when the end of your interest-only payments draws near.
Lenders are tightening up on interest-only payments

One strategy is to speak with your current lending institution about extending the interest-only term for another couple of years. However, these days less lending institutions are providing interest-only loans and the rate of interest that uses can be higher than for P&I loans.

Bottom line is, there is no guarantee you will have the ability to continue interest-only repayments with the same lending institution, and even if you do, you might find yourself paying a greater rate than in the past.

Change to Principle & Interest payments

Most of the times, your lender may use the opportunity to switch to making P&I repayments. But you may require to be prepared to pay more every month in mortgage payments, the RBA has crunched the numbers and discovered going back to P&I payments could add an additional 30-40% to your regular loan payments.

With that sort of money included, the end of interest-only loan payments is an ideal time to browse for a more competitive mortgage, you don’t have to merely accept what your present lender is providing.

Refinancing To A New Loan

You might have the choice to refinance your interest-only loan with a different lender. Or refinance to a new loan making P&I repayments though with a longer loan term, which can minimize the routine payments. In any case, it is worth seeking to see what is readily available in the market.
Talk to a specialist to understand your options

The bottom line is that a variety of alternatives are offered when you’re coming to the end of interest-only payments. Planning ahead means you won’t have to make a rushed choice and can be sure the strategy you take is the ideal choice for your scenarios.