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Interest only period over - credit reassessment :(

Discussion in 'Finance & Banking' started by manic, 25th Jul, 2013.

  1. manic

    manic Member

    Joined:
    24th Jul, 2013
    Posts:
    6
    Location:
    Melbourne
    Hi,
    Long time lurker, first time poster here.

    In short, my loan is 5 years in and has switched from interest only to P&I. Id like to keep it as interest only. When we got the loan, we had two very high incomes and now we have one lower income and 2 dependents (3 including wife?).

    After speaking to my bank manager, he said to keep it interest only they would need to assess serviceability. I know I won't be able to service the current loan from a banks perspecti, but in reality I do and save a little each year with my income.

    If I do go through an income assessment and the bank finds they've lent me too much, can they take back some of the loan? It's currently in investment properties and wouldn't want to sell.

    Thx in advance.
     
  2. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
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    Location:
    Sydney
    ANZ?

    I am not sure they could demand repayment - probably not for a residential loan. Why not ask the bank person you are dealing with first and also ask for an informal assessment before he lodges.
     
  3. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
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    Location:
    Berwick Vic
    Manic,
    Sometimes a problem with dealing with banks directly. Most lenders via a broker channel will simply roll over for another 5 year period without further assessment, often a simple statement from the borrower is all that is needed or even a letter requesting an extension.

    Obviously dependent on good repayment behaviour.

    Why not go to a good broker and simply enquire without committing, what is your borrowing capacity? You will soon know if you can refinance in your current circumstances. I have had many clients turned down by a bank and yet been able to find other lenders that they can service with. If your bank is going to play hardball, go see what your options are rather than having to pay P&I, unless it suits you.

    I agree with Terry, a lender is unlikely to ask for repayment but they are within their rights to swap you to a P&I loan if you are out of the term of the IO period initially agreed upon.

    Good luck with it and let us know how you get on.
    You are welcome to contact me if you do not have a broker.
    Greg
     
  4. manic

    manic Member

    Joined:
    24th Jul, 2013
    Posts:
    6
    Location:
    Melbourne
    Thanks for your replies Terry and Greg.

    I spoke with my relationship manager and he said that they would need to reassess serviceability like its a new loan if it were to be switched back to IO.

    I thought it would be a bit risky letting him know that I wouldn't meet serviceability at the moment because my wife is not working due to having kids but he seemed ok with it. I haven't missed a beat in repayments and have plenty in offset accounts to service the loan so he shouldn't be concerned.

    I want to keep the current loan amount for investments and may look at refinancing to IO once my wife goes back to work. I also want to keep the loan to the max amount possible on my investment properties for negative gearing purposes, I will moderate the interest I pay on them via the offset accounts.

    Cheers.
     
  5. jodie123

    jodie123 Active Member

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    15th Aug, 2012
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    Location:
    Brisbane, Qld
    Good luck, maybe time to go through a broker next time?
     
  6. manic

    manic Member

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    24th Jul, 2013
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    Location:
    Melbourne
    That could be a good idea Jodie.
     
  7. FMS

    FMS Perth Mortgage Broker

    Joined:
    8th Feb, 2014
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    Location:
    Perth
    Some banks its a simple tick and flick form to go from P&I to I/O whilst others require a Spanish inquisition. You have copped the later unfortunately.

    Some banks allow an option of up to 15 years I/O but most are 5 years max.

    A strategically minded broker will ask what your future plans are and choose a lender to suit but in saying that something like this would be easy enough to overlook.
     
  8. Albertus Waldron

    Albertus Waldron Member

    Joined:
    13th Jul, 2012
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    Location:
    Sydney
    Sounds like it was a good time to check your circumstances.. If the bank is really going to do an assessment and tell you that you can't afford the loan then as harsh as it maybe, it maybe a good time to review your personal budget and reassess things. If you have been keeping up the loan payments and the loan isn't putting you under any financial distress then it's more likely the Bank or lender will end up with the same result.

    www.awesomelendingsolutions.com.au