Interest-only loan option

Hi Heisenberg,

Yeah, wrong time perhaps eh?  The current situation has the costs of building, buy prices, fuel, rentals, insurances, and interest rates, all going through the roof.  Now an increase in rental helps your situation, but everything else hurts it.  The big mover (for me) was the astonishing climb in Interest Rates.

In years past, a Central Bank would lift rates two or three months in a row, then sit back to see the effect before lifting more.  Not this time – we have 12 lifts in 13 months – they didn’t allow folks to come up for air !!!   Interest Rates on most IO loans went up by around 150% !!!   This of course has people struggling to keep a property positive geared.  Like, can one seriously put their rental rate up 150%?  But as you would know, rents HAVE soared recently, but nowhere near enough to offset the increases in Interest.   Thus landlords sell, and some folks renting are now living in cars.

Then there’s the “mortgage cliff” awaiting anyone who has a Fixed Rate loan coming due for refinancing soon.  i.e. They were on a Fixed Loan with Interest around (say) 3% and now can’t get a 7% loan (with the lenders wanting proof the lendee can handle a further 3% on top of that – eek).  What happens to them?

What MIGHT happen if enough can’t refinance is that more homes will appear on the market, and prices may start to drop again.   But I wouldn’t hold my breath on that either.  What I think is more likely is that the RBA will realise they have forced the economy into a recessionary state, and that they will see the error of their ways and cut rates again.

I was bleating about the RBA since they first raised rates in 2022 – hoping they might read this forum (yeah, right) and realise their errors sooner (go here to check it out if you wish – https://www.propertyinvesting.com/topic/5083103-how-does-an-increase-in-the-rbas-cash-rate-help/ ).  I think they should have raised rates off that Emergency Setting of 0.1% around the time we first had employment under 4% (about 18 months prior).

So I don’t think you are doing anything wrong, and putting aside $$ is always a good move ahead of any new investment venture.  Meanwhile, why not read around to glean some ideas of how others have succeeded.  e.g. check out some good books, forum posts, go to seminars, etc to round out your knowledge  ahead of that time.

Oh, and this comment of yours has me scratching my head – “…. and then roll over the next financial year?”   I was wondering just what that meant.  What were you planning to “roll over”?  Oh, and do check out Offset Accounts if you are saving $$ – these are such a benefit if used correctly.  I hope you are using one already.  :)

Benny

Hi Heisenberg,

 Oh, what I meant by roll over is – whatever my wife and I can save thru tax deductions (for investment property) to be used to replenish the funds (albeit not completely) that were used to cover rental shortfall and outgoings? Hope I’m not wrong to think this way?

Ah, now I understand what you meant, so thanks for the explanation.  Right now might be just the wrong time to attempt negative gearing, as mentioned above, so do tread carefully.

By the way, with some folks “coming unstuck” around these difficult times, it may be that you may yet find a bargain, and help someone else to “move on” anyway.   Not to be unfair, but folks have things go bad at times, and often they find they just want to clear the deck and start again.  With home buyers struggling to find finance, they might need an investor (even if paying them less for their property) to buy them out so they can move on.   By making an offer, you might be the only one doing so, and they may accept that lower offer rather than keep feeling the pain of a mortgage that has suddenly got way too expensive to maintain.

Do get with a Mortgage Broker or similar to check your finance availability before going searching though – you need to know your limit, eh?

Good luck,

Benny