Interest Only Loans

Hi Xon,

All our IP loans are I/O. When the PPOR loan is paid out (or had a big hit) we will reconsider our options then – but for now all I/O.

The other thing you can consider is take out the loans as I/O and then, if the time is right and it suits you, you can make additional payments so that you get stuck into debt level.

I/O provides you with the option – whereas P & I contract generally doesn’t.

Derek
[email protected]

Property Investment Support Available. Ongoing and never stopping. PM welcome.

I’m pretty sure this is not the case with property now. Certainly with margin loans with the share market, but there was a detailed thread a few months ago where many people ‘I assume in the know’ stated banks can only start to call in a loan in the case of default, not simply by a fall in equity ratio (even if a negative occurs!).

More knowledgable members may want to back this up.

When using interest only loans how does equity occur if none of the principal is paid off? Is it only in capital gains?

How then in uncertain times like these does the bank view your property portfolio?

Are people’s 11 second rule calculations all on IO loans?

______________________

I know I can, I know I can

In short,

The great thing about IO is that it increases your weekly income as your repayments are alot less.

The downside to it is that after 25 or 30 years of the loan, you still owe the banks the same amount a what you bought it for – whether this be $100k or $300k.

Regards,
George

I’ve found a way to help you save and earn whilst not selling or delivering any product. If interested, drop me an email or PM me to find out how

Hi Simon,

Although you’re right, 30 years ago is not the same as today or you can’t say that what happened over the past 30 years will happen over the next 30 years.

40 years ago, a friend of mine’s dad was offered 2 properties in Toorak for $10k that are probably worth a fewmillion now. but purchasing something now for $200k or $300k doesn’t mean it’ll go up to 2 million in 30 years time.

Secondly, even if it does go up that much in value, would someone want to wait that long before enjoying a comfortable life since its gobe up in value, its all tied up in equity – not in cash that you can use. Most ppl in 30 years will be old and depressed.

Kind regards,
Geo.

I’ve found a way to help you save and earn whilst not selling or delivering any product. If interested, drop me an email or PM me to find out how

Hi Geo,

Hmmmmmm – cannot use equity?

The lending world has significantly changed in the last two or three years and even a basic strategy such as a ‘reverse mortgage’ is readily available to asset rich cash poor people.

However the downside of the reverese mortgage is that the restrictions at the moment are quite significant.

There are also lo doc/no doc loans available to people who are asset rich cash poor or then there is the cashbond option (see http://www.navra.com.au) for people who are asset rich and cash poor.

All of these options enable an individual to live off their equity and retain the asset.

Then of course there is the sell a couple and live of rents possibility or even the staggered sell the lot and live off the proceeds option.

To say you cannot live off equity is incorrect – as to whether or not that option suits every individual that is a different matter.

Derek
[email protected]

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Amazing example Jo. I’ve never seen or heard of somthing going this much up in value but I won’t doubt you. Its estimated that property doubles almost every 10 years. This property you speak about has gone up almost 6 times in value.

My understanding is that anyone may still use the equity in his/her place but will be owing to the lending institution moneys in the form of the re-borrowed equity. How can someone use the cash in their equity whilst still retain the full asset? Does not the lending institution own part of it?

Kind Regards,
Geo.

I’ve found a way to help you save and earn whilst not selling or delivering any product. If interested, drop me an email or PM me to find out how

Good Morning,

I joined yesterday and have been enjoying viewing many of the posts. There is some fine exchange of knowledge here it is a credit to the contributors. I will be spending some time here in the future.

I would like to take up the issue that ashrik raised of financiers calling up loans and the follow up question raised by stormbiz that said…

“I’m pretty sure this is not the case with property now. Certainly with margin loans with the share market, but there was a detailed thread a few months ago where many people ‘I assume in the know’ stated banks can only start to call in a loan in the case of default, not simply by a fall in equity ratio (even if a negative occurs!).”

I can tell you first hand that the bank can can call their loan back for ANY reason whatsoever.

Back in the late 80’s I borrowed $750,000 on 3 year bank bills IO from a major Australian bank which was 100% of the purchase price to buy the factory my printing business was situated in. The price was high but I thought it was a good buy because it would have cost me a lot more to move all my printing machinery to a lower priced factory anyway and I was intent on not renting anymore.

The market crashed within 2 years. The factory went from 750,000 to 520,000. Despite the fact that I had never missed a single payment PLUS assurances from the bank over the previous 6 months that there would be no problem re-newing the finance when it came due… when the bank bills came up for re-newal they tapped me on the shoulder for the shortfall.

Due to the recession my printing company was strugling but despite that it still had possitive cash flow and the bank knew it. So I asked (no I begged!) them to let it go and just re new on the basis that the value would rise once again in the future.

The bank in question was in major financial difficulty and was selling their own property holdings to secure cash and they said no and gave me 30 days to find the money which I was unable to do.

When I made an appointment to see several top executives of the bank at their head office and plead my case I was not treated like a good customer at all, and sensed immediatly that I was going to be opposition.

They simply told me to get the money or else and suggested I should go home and read my mortgage document which I did and it said the bank could call their loan for any reason even if all the payments were up to date.

When I couldnt get the shortfall the bank asked for the whole lot back in 30 days.

The rest is a much longer story than this and with help from friends in the printing and legal business I actually came out of it in not too bad condition but I want to make the point that you do not have to be in default for banks to act against you despite how keen and freindly they are when selling the funds to you.

Sorry for the long post as a first timer but I wanted to make that point based on first hand expeiience.

Cheers
Craig

Bought my first property in 1975 for $ 18,000, all the neighbours thought I was paying too much as prices had just gone up from $ 14,000, I sold this property in 2001 for
$ 638,000 and every one told the buyer he was mad and paid too much, other properties close by have now sold for
$ 730,000.
These prices have been the norn in many European countries for years and still going up, it will never stop.