Recent changes in the investment lending landscape have resulted in banks taking a much stricter approach to interest only loans. One outcome facing many investors is the limitations now imposed on extending interest only terms.

Whereas, in the past it was commonplace for Lenders to extend interest only periods quite readily, most Lenders will now require customers to submit a new full application to request an extension. As lending policies are now stricter than in previous years, there are many borrowers now facing the prospect of not being able to roll over to a new interest only period.

Below are a few tips that may assist you or ease the pressure if paying principal on your investment is on your horizon.

Ask your Broker to do a pricing request with your Lender

Your Mortgage Broker should be able to approach your Lender on your behalf as request that they review your rate and offer an additional discount based on your loyalty as a customer and to retain your business. In most cases, depending on what your current rate is, your bank will come back with some form of discount. You may be able to use this discount to adjust your repayments accordingly, thereby shaving off your mortgage outgoings.

Switch products

By asking your Mortgage Broker to review your portfolio and products there may be scope to reduce your repayments by switching to another product. In the current market, there are many fixed rate offerings that are particularly competitive, and many investors are choosing to fix as a cost-effective strategy.

Refinance to a different Lender

If your current lender is unable to offer you another interest only period there is no reason you can’t look elsewhere. Your Mortgage Broker will be able to firstly assess your position to confirm if you will qualify to be considered elsewhere, and secondly see what market leading refinancing offerings are available for your consideration.

Pay principal and reap the benefits

Many investors have been forced to confront the reality that indefinite interest only loans are passé. Yet, it’s not all doom and gloom. Principal and interest loans are priced cheaper than their interest only counterparts. Although you may see your repayment increase, you will also witness the loan balance reduce and therefore equity will be created.

Is Your Interest Only Period Approaching its Expiration Date?

If you know that the term on your interest only loan is coming to an end, it’s best to get on the front foot and contact your Mortgage Broker for guidance. Knowing where you stand is crucial in helping you make decisions moving forward.

Perhaps a worthwhile consideration would be to ask your Broker what your P&I repayments will be and start making those repayments now to give you an idea of what, if at all, the impact will be when you do have to start paying principal.