If your lender has recently been in touch with a request to switch your investment property loan to a principal and interest payment option, you’re not alone.
The banks have plonked a 30% cap on the number of investment property mortgages that can be paid using an interest only repayment option. The remainder of those landlords with loans must now make principal and interest (PI) repayments. In other words, if you’re one of the 70% of investors outside the lending cap, you must repay some of the balance on the investment debt as well as the interest.
Throw in higher interest rates for investment loans, which can be as much as 0.5% more than those paid by owner-occupiers, and its little wonder some investors are feeling the financial pinch. In some cases, on a $500,000 investment loan, the additional repayments and higher interest rates could mean paying an extra $900 per month in investment loan repayments. Not a small amount of money to try and recover.
For example, making interest-only repayments on a $500,000 mortgage at 3.99% will cost an investor $1,650 a month. In comparison, principal and interest repayments on a $500,000 loan with a 4.49% interest rate are $2,530 monthly.
There’s no doubt you can request a rental increase paid by your tenants to recover some of the additional loan costs. However, charging your tenants more is a risky strategy, especially with higher vacancy rates for units and houses in many of our capital cities are giving renters more options.
A better solution to meeting your lender’s new demands might involve working with Our Broker, to find a financial solution that won't mean losing a reliable tenant. At Our Broker, we have 35 lenders at our disposal who have not reached their 30% lending limits and who would be delighted to refinance your investment loan at minimal cost and restore the mortgage to the lower repayment.
Working with Our Broker to find the right investment loan, will allow you to keep your tenant away from another investor offering a cheaper rent. Losing a tenant will only serve to magnify the issue of paying more for the investment loan.
Our Broker is only too happy to help you get back on track. Call now for an obligation free quote on 1800 913 677.