May 03, 2018
If asked in 2016 the answer to the above question would have been in most cases - unlimited.
Generally Interest Only periods were for 5 year periods and upon expiry we had the option to ‘roll over’ for a further period.
The landscape has changed considerably
The landscape has changed due to ongoing concerns from the regulator (APRA) of the high level in percentage terms of Interest Only loans In Australia. Not only have the lenders amended policy to slow Interest Only approvals but they have also increased interest rates to deter unnecessary interest only structures.
In particular the regulator has encouraged lenders to restrict Interest Only repayments for Owner Occupied loans as they have a preference to debt reduction associated with lending for the family home.
Traditionally a large percentage of Investment home loans were structured with Interest Only repayments to maximise taxation benefits and minimise cashflow outflows. Lenders still have an appetite for Interest Only structures for Investment purposes, albeit paying a slight premium for the benefit.
Lenders are reluctant to extend Interest Only period
An issue we are seeing arise in the new environment is when a clients 5 years of Interest Only repayments expires for an Owner Occupied purpose. Many lenders are reluctant to rollover the Interest Only repayment term for a further period leaving clients with a choice of either refinancing to another lender or commence Principal & Interest (P&I) repayments.
Sometimes commencing P & I repayments is a great wealth creation strategy however we also work with clients whom Interest Only repayments is a successful strategy, freeing up cashflow for other wealth and income creating purposes.
In summary, if your bank refuses to extend your Interest Only period all is not lost. It is a great time to conduct a health check, not only on your repayment structure but also your current rate as some lenders have implied high premiums for Interest Only loans.
As always happy to answer any queries you may have.
We are always hapyp to answer any further questions you may have about interest only maximum terms. Call myself or the Balwyn team on 9580 6922 or click on the Contact us button at the top of the page.
Chat soon, Dwayne
