Nearing The End Of The Interest Only Period

Date: December 18, 2018 By: admin2018

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.