Do you have an interest only loan??
March 15, 2018
Written by Jason Cheetham
If you do, you should have noticed (unless your loan is in a fixed rate) that the interest rate has increased on more than one occasion in the past 12 to 18 months. Most banks have their owner occupied interest only (IO) rates around 0.4% to 0.8% above their principal and interest (P & I) variable rates. In some cases your interest rate could be over 5%.
Further if you have an interest only investment loan then the interest rate is higher again as investment variable rates have also climbed over the same period.
Some of you would have a fixed rate maturing sometime this year and the interest rate you revert to may differ significantly from lender to lender depending on whether the interest only period expires at the same time as the fixed rate.
Here’s an example of how much the rates can differ:
Owner occupied variable P & I from 3.59%
Owner occupied variable IO from 4.08% (most lenders sit over 4.30% variable)
Investment variable P & I from 3.99%
Investment IO variable from 4.34%
Now I can almost guarantee you that if you have an interest only investment loan at the moment you would be paying closer to (or above) 5% rather than rates quoted above… so contact us for a chat about your options. Some banks are paying around $1,200 towards your refinancing costs (which covers the full cost to switch if you have enough equity to avoid paying any mortgage insurance), making it more than worthwhile to save you some much needed money!
In some cases the rate difference between IO and P & I is that great that the repayments for P & I over 30 years at the lower rate don’t come out much different from the interest only repayments.
So why are interest rates for investment and interest only on this rollercoaster ride?? Thanks to our friends at APRA, the governing body of the banks, who have limited the amount of these types of loans Australian lenders can have as a percentage of their loan portfolio. What you are not seeing is that when banks fall below required levels and reduce these interest rates to bring in new business again, is that existing customers are not normally the beneficiaries of these reduced interest rates.
Call it bank profiteering….. call it being responsible to their shareholders….. call it whatever you like… but our job as your broker is for you to pay the lowest amount of interest possible to your bank !!!
If you are in this situation with an interest only loan, investment or otherwise, please get in touch!