What to do when your interest-only period expires?

Interest only property loans have been popular amongst investors in recent years, with many hoping to jump on the property bandwagon while making minimal repayments.

According to finder.com.au, interest only loans made up 42% of new lending in 2014-2015. With many interest only periods lasting for just 5 years, many borrowers are about to find themselves up for paying both the principal and interest on their loan, which can be a significant increase.

Starting to pay off the principal of your loan can be seen as a good thing, as it will help you chip away at your home loan and build equity, however there are things you may need to do to get ready for the higher payments.

  1. Confirm when interest only period ends 

The first thing to do is confirm with your lender when your interest only period will end, and what your new repayments will be. You may also like to discuss the possibility of extending your interest only period if you want to hold off on paying off the principal.

  1. Re-evaluate your budget 

Once you’re aware of the extra costs involved in paying off principal plus interest each month you will need to reassess your budget. It’s best to prepare as early as possible so you can start cutting out any extra costs to make way for the extra payments.

  1. Shop around 

Your current lender may not offer the best home loan rate. Before your new rate kicks in it’s a good idea to shop around and see what other products are available. Chat to your lender too and see if they can improve the rate they are offering. Any savings on your repayments will help free up some of your cash flow.

  1. Talk to a broker

Reverting to paying principal and interest can be a shock, but you may have a few options available to you. Talk to your mortgage broker or lender to find out what is best for you going forward. For any advice contact Professionals Finance.

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