Interest Only update 6/2017

Lets face it investors, we've had it too good for too long.

Negative gearing, historically low rates, interest only lending for 15 years, using actual repayments on existing loans to calculate borrowing capacity thus allowing people to borrow more...  

It was only a matter of time before big brother APRA pulled the plug on this party. 

That they did.

Just like a night out at the Cross in Sydney ending prematurely due to the new lock out laws, many property investors are left scratching their heads wondering why the party ended so soon and feeling the pinch on their now lighter wallet.

All good things must come to an end, and the future of interest only lending is in jeopardy.

While NAB have done this for the past few years, other banks across the board are discriminating between Interest Only (IO) and Principal + Interest (P+I), with as much as 100 bpts (1.00%) difference between the 2.

Most banks are also not accepting interest only repayments on existing mortgages in their borrowing capacity calculation, in fact IO is penalised as calculation are now based on reduced P+I periods.

Opting for P+I and making use of redraw facilities, even for investment loans may be the way of the future, but If you insist trekking on with IO, be prepared to pay 5%+ for the privilege.

Do take solace however, it was only a generation ago our parents were paying off mortgages to the tune of 15-18%. We've still got it good!