Over the past twelve months there has been a crack-down on interest only loans.
In the past, lenders may have approved an interest only loan for you, but things are different today.
Interest only loans are still available for the right purpose, for example to purchase an investment property. But today lenders won’t allow interest only repayments on home loans.
At the end of your interest only term, it’s important you have right loan for now and into the future. Don’t let the bank change your loan to a product they want you to have.
What happens at the end of the Interest Only term?
In the past, a lender may have approved an interest only loan for you, but things are different today.
A recent survey by comparison website Finder found more than half of those switching from interest only to principal and interest may face difficulties with the higher loan repayments.
At the end of your interest only term, the lender will automatically change your loan to principle and interest repayments. This means your monthly repayments will increase by hundreds of dollars.
If you want to extend the interest only term, lenders now require a full assessment of your income and living expenses – it’s like your applying for a new loan.
Make sure you have the right loan
At the end of your interest only term, the bank will automatically change your loan to principle and interest repayments.
When this happens, how do you know you still have the right loan?
A useful guide is the comparison rate that all lenders are required by government legislation to provide. But keep in mind that it is only a starting point.
Even though it includes the basic loan costs, such as set-up fees, interest rates and ongoing charges, it does not include bank fees that are only charged in certain circumstances.
Do you need independent advice?
If you decide to use a broker, you need to make sure they can offer you the choice of many different lenders.
Most independent brokers will have around 20 different lenders, and they will recommend the best three lenders for you to choose from.
It’s important to get independent advice you can trust.
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