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Banks take action on Investors and interest only loans

Posted by Director, Meiken Barnes • 06/07/2017 • Tags:

APRA has spoken and the Banks have taken action on investors. 

Interest only loans are getting harder to approve and retain with stifling changes to credit policy, interest rates and processes. Not only are new borrowers affected by the changes, existing interest only borrowers will find it harder to extend interest only periods and will come under the microscope for affordability. Investors could soon be forced to pay principal and interest on investment loans, if they cannot prove affordability of the higher debt repayments after the initial interest only period. The interest rate for investor loans have risen 35 basis points, making it a less attractive option as the Banks seek to increase their clients paying principal and interest. 

Overview of changes:

Over the past few weeks, here are some changes we have seen, (note that these changes don’t apply to all Lenders):

  • Interest only loans have additional interest loadings of around 35 basis points, ANZ, NAB & CBA
  • Extending an interest only period, must be assessed as a new application for finance where your affordability is determined.
  • LVR restrictions apply and location can also impact on the options, recently AMP decreased lending to just 50% for investors and other Banks have announced less drastic changes.
  • Interest only terms for business and SMSF loans have been reduced from 10 year options to just 5 years.

If your financial position has changed since you obtained your loan or even if your position remain the same, the Banks policy has changed, making it harder to demonstrate loan affordability. You could find yourself in a position where you cannot prove to the Bank that your affordability is strong enough to extend an interest only period on your investment.

If funding your investment properties has been achievable by making interest only repayments, you need to be aware of the risks and potentially take  action now. If you are coming up to the expiry of an interest only loan and you are not in a position to start paying down the principal, finding out your options sooner rather than later could be the difference between carrying a successful investment property or entering into hardship.

If you require guidance on securing your finances, please call the team at intouch Finance Albury today. We are here to take the fuss out for you!


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508 Macauley Street Albury, NSW