{"id":2423,"date":"2017-07-05T01:47:30","date_gmt":"2017-07-05T01:47:30","guid":{"rendered":"http:\/\/www.prosolution.com.au\/?p=2423"},"modified":"2018-03-08T17:17:15","modified_gmt":"2018-03-08T07:17:15","slug":"update-recent-lenders-rate-hikes-can","status":"publish","type":"post","link":"https:\/\/wealthcoach.com.au\/stage\/update-recent-lenders-rate-hikes-can\/","title":{"rendered":"Update on recent interest rate hikes and what you can do about it"},"content":{"rendered":"

\"Interest<\/a><\/p>\n

Over the past few months, the major banks have made some significant changes to interest rates (some of which take affect this week). The government has directed the banks to dramatically reduce the volume of existing and new interest only home loans and investment loans (see here<\/a> for more on this). What the banks have been doing is increasing interest rates on any interest only loans in order to incentivise borrowers to switch to principal and interest (herein \u201cP&I\u201d) loans. They have reduced interest rates by a tiny margin on P&I home loans.<\/p>\n

The margin is now over 1%<\/h3>\n

The interest rate differential between a P&I home loan (circa 4.20%) and an interest only investment loan (circa 5.25%-5.30%) is over 1.00%! In December 2015 (approximately 18 months ago), the interest rates for these two different loan types were identical.<\/p>\n

Interest only loans are now more expensive and the banks don’t want this business.<\/p>\n

What can you do about it?<\/h3>\n

There are three possible solutions. Which solution best suits your needs depends on your individual circumstances and future plans (don\u2019t forget the important theme of this blog<\/a>). Of course, we\u2019re here to help so feel free to contact us if you would like help working out which solution is best for you.<\/p>\n

(A)\u00a0\u00a0\u00a0 Switch to a fixed rate<\/h4>\n

Variable interest only (herein \u201cIO\u201d) investment loan rates are currently in the range of 5.05% and 5.30% p.a. (but depend on your discount). Many of the current IO fixed rates are a lot lower \u2013 here\u2019s an indication of current fixed rates (investment & IO):<\/p>\n

2 years = 4.20-4.50%
\n3 years = 4.30-4.50%
\n4 years = 4.50-4.90%
\n5 years = 4.50-5.00%<\/p>\n

However, before you fix your interest rate, read the first half of this blog<\/a> for some of the things you need to consider.<\/p>\n

(B)\u00a0\u00a0\u00a0 Switch your repayments to P&I<\/h4>\n

The difference between P&I and IO investment variable rates is currently circa 0.45-0.50% p.a. Don\u2019t forget that you receive a tax deduction for investment loans so the after-tax differential is lower \u2013 maybe between 0.24% and 0.30% p.a.<\/p>\n

If you have surplus cash flow and the higher P&I repayments don\u2019t worry you, then switching to P&I might be a good way to mitigate the impact of these rate hikes. We usually don\u2019t like to make P&I repayments on investment debt but in some limited circumstances it\u2019s okay.<\/p>\n

Alternatively, if you have some equity in your property\/s, there might be an alternative loan structure that will allow you to obtain the lower P&I rate whilst still only paying IO.<\/p>\n

(C)\u00a0\u00a0\u00a0 Refinance to a lender that is not an ADI<\/h4>\n

An ADI is an Authorised Deposit-taking Institution (a bank). ADI’s are regulated by APRA<\/a>. APRA is the regulator responsible for setting the interest only and investment loan volume restrictions mentioned above. Some lenders are not ADI\u2019s and therefore escape these APRA directives. These lenders are often referred to as mortgage managers. Mortgage managers borrow money at wholesale interest rates (and\/or by issuing mortgage-backed securities) and on-lend it to consumers. They are still safe to use and are regulated by ASIC.<\/p>\n

The interest rates offered by some mortgage managers are now approximately 1% lower than the major banks (for interest only investment loans).<\/p>\n

Planning to make a change? It\u2019s our job to guide you<\/h2>\n

The above blog is a summary only and there is a lot more to consider when contemplating any of the changes above. Therefore, to ensure you are making a fully informed decision (that you won\u2019t regret in the future), please don\u2019t hesitate to reach out to us. We can have a quick chat with you and share what we think is the best course of action. In fact, it is quite possible that \u201cdoing nothing\u201d is the most intelligent thing for you to do.<\/p>\n

 <\/p>\n ","protected":false},"excerpt":{"rendered":"

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