It’s not as easy as it once was to apply for an interest-only loan. Over the last couple of months lending for this type of investment loan has been tightened in an effort to slow the pace of record growth in investment home loans.
Lenders are under pressure by government regulatory bodies to make it less attractive to take out interest-only loans, a strategy which is hoped will protect investors and achieve sustainable growth in the home loan market.
Lenders have responded to the crack-down in different ways. Some now ask for larger deposits for investor loans or have scraped discounts they previously offered. Others have begun to price loans with principle and interest repayments cheaper than interest only loans. Still others now offer better discounts on owner occupied loans or allow investors to borrow less than owner occupiers.
Which way to turn?
As these changes are not uniform across the industry, but vary from lender to lender, it has been difficult for investors to know which way to turn. We have had many clients come to us worried about whether the changes affect their existing loans or what they should do when they make a change or try to restructure their loan.
As your mortgage broker, we are in touch with the latest changes occurring in the industry and can seek out the best options to suit your particular needs.
Should you take out an interest-only loan?
Interest-only loans can be a tax-effective way to invest in property, but they are most effective when accompanied by advice and tax planning.
Because the monthly repayments are minimal for a specified amount of time (usually between 1-5 years), it offers to method to free up funds in the short term for other investments, renovations or to pay off non-tax deductible debt like credit cards and car finance.
However, problems start when the interest only period ends and borrowers who haven’t planned their finances carefully are unable to pay off the principle amount, along with the interest. If property prices fall and you are forced to sell, you may end up selling for a loss.
The other drawback is that because you are only paying off interest, your original loan amount doesn’t reduce because you are not paying any of it back, which equates to a considerably higher cost over the full term of the loan.
At Launch Money, our brokers understand that what once worked with the lenders will no longer get a result, staying ahead of the curve with regards to knowledge of process and client requirements, ensures our clients are presented with open doors. If you are considering entering an interest only loan and would like to gain a better understanding of the implications both now and for the duration of the loan, speak with our brokers today, they are here to advise and help.
Our mortgage experts sit alongside our other CXC Financial Partners team members and work hand-in-hand to establish your mortgage with the correct tax structure in place, maximising tax benefits both in the short and long term.
To speak with a broker at Launch Money about a loan for your home, investment property or vehicle call our team on (02) 9009 2457. Alternatively, you can reach us through our contact form.
About the Author:
May holds a Bachelor of Mathematics/Finance, is multi lingual and holds accreditation with the FBAA. May has demonstrated her commitment to client satisfaction in an outstanding career in finance and lending spanning 8 years. Rising through the ranks within a top tier lending institution, customer satisfaction became the cornerstone of her successful career as a lending consultant. Today, May heads up Launch Money, bringing her customer service skills to the business and ensuring our clients receive the best possible result for their lending needs. May’s key priority in all her dealings is to ensure our clients are well positioned to make educated decisions and activate their prosperity through tailored finance solutions.
May Chong can be contacted on (02) 9009 2457 or by email on firstname.lastname@example.org
Disclaimer: The information, analysis, provocations, suggestions and opinions contained within this email are provided by Launch Money Pty Ltd (ACN: 163 989 562). You should consider whether the information or advice contained in this article is appropriate to you having regard to these factors before acting on it. You should seek personalised advice from your financial adviser and your accountant before making any financial decision in relation to matters discussed in this article.