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It’s the end of the road for 900,000 borrowers on interest-only loans, as they’ll be automatically switched to principal and interest loans this year. Now’s the time to check whether or not you should start considering other options.

Back in 2016-17 – at the height of the property boom – some 900,000 interest-only loans were taken out, according to report quoting an analysis by Finder.

Once the five year period on these loans is up (which is imminent for some borrowers) these loans will automatically jump to principal and interest loans.

The analysis finds that this will add an extra $400 a month to a borrower’s repayments if they have a loan of $316,000 – that’s almost $5000 a year.

Additionally, while many economists now predict the RBA will keep rates on hold throughout 2020 – just like they did last year – that doesn’t mean the banks will follow suit.

So what are my options?

Ok, so if you took out an interest-only loan during this period, first and foremost you should check when it’s due to end.

Now if it is, the obvious option you have at your disposal is to cut back on some other expenses in your life to make ends meet.

However, that’s not necessarily your best option.

Here are three other options available to you that won’t result in you having to make so many compromises elsewhere in life (HINT: we can help you with all three!):

Extend it: Sure, the 5 year period might be ending, but we can always speak to your lender about extending the interest-only period for you.

Negotiate it: If the lender insists on you moving over to principal and interest, it never hurts to ask for their lowest rate possible (which they don’t always advertise).

Switch it: If your lender won’t budge, or you simply want to change things up, we can help you find a principal and interest rate with a lender that’s offering a more competitive deal. You may still have to pay more each month, but your repayments should be lower than those you face when your current loan switches over to principle and interest.

Final word

As they say, forewarned is forearmed.

So if your interest-only loan is rolling over to principal and interest soon, don’t just accept it. Act now.

Get in touch with us and we’ll be more than happy to run through your options with you and help you switch to a more competitive alternative.

Reckon you could scrounge together an extra $50 each week to pay off your mortgage? If so, latest modelling shows the average household with a $400,000 loan could save $46,992 and pay off their home loan four years faster.

This week we’re going to look at the benefits of paying just a little bit more off your mortgage each week.

Now, this is quite a timely subject because the RBA has just delivered back-to-back cash rate cuts, so even if your monthly repayment amount has been reduced, there’s a lot to be gained by sticking to the same amount you’ve been paying over the last few years.

Breaking it down

One of the biggest problems people run into when trying to pay off their mortgage faster is trying to do so in big, irregular lumps.

It helps a lot more if you break it down.

So instead of trying to pay an extra $150 to $300 extra each month, break it down to a weekly amount that you can actually commit to, like $20 to $50 a week (or $3 to $7 a day – basically one or two takeaway coffees).

Breaking it down into smaller figures also helps reinforce good habits, and can help with your family’s cashflow.

Below, we’ll look at some modelling conducted by AMP that shows the benefits of setting up a weekly direct debit that will automatically pay an extra $20 to $50 a week off your mortgage.

What an extra $20 (aka a lobster or mud crab) a week gets you

– $400,000 loan: save $21,281 in interest and pay it off 1 year and 9 months faster

What $50 (aka a pineapple) a week gets you

– $400,000 loan: save $46,992 in interest and pay it off 4 years faster

What $100 (aka a lime) a week gets you

– $400,000 loan: save $78,828 in interest and pay it off 6 years and 11 months faster

Check out the full list here, which covers loans of $300,000, $500,000 and $1 million. All the calculations assume that you’re five years into a 30-year average home loan.

Get in touch

If you want some more tips on paying off your mortgage sooner – or you want to discuss your refinancing options – then get in touch.

We’ve got plenty of ideas up our sleeve and always love sharing what we’ve learned with our clients.

Most Australians grow up with the dream of buying and living in their own home. But, given the difficulty of cracking into the market in trendy locations, another option has emerged.

So what is rentvesting?

Put simply, rentvesting is the increasingly popular practice of buying an investment property while continuing to rent.

The logic surrounding the idea is that rentvesters will be able to rent out the investment property to generate an income stream that covers their rental payments.

The property can then be sold at a later date for capital gains.

Rentvesters tend to buy investment properties in affordable areas while renting a property somewhere more affluent.

This allows them to live in their desired location whilst building an investment portfolio that will eventually provide them with the means to purchase a property there.

Who it might suit

Rentvesting may be most suitable for young professionals who want to live an aspirational lifestyle in the present without endangering their chances of getting on the property ladder later on down the line, and who are willing to wait a while to call their home their own.

That said, rentvesting is not for everyone. Particularly not for those who see renting as a waste of money when they’d rather be channelling their earnings into something that is fully theirs.

The pros

Rentvesting gives people the opportunity to get on the property market sooner than they might otherwise have. That’s because a smaller deposit is needed to purchase a property in more affordable areas.

It also allows people to live the lifestyle they want without having to worry about taking on a huge mortgage, as well as giving them an opportunity to build wealth and reap the tax benefits of investing.

The cons

The primary concerns many people have with rentvesting involve the fact that it requires pushing lots of money into rental payments.

There are also no guarantees that rentvesting will pay off, and it may seem counter-intuitive to buy an investment property before your own home.

In this way, rentvesting is not necessarily suited to those with emotional attachments to properties.

Is rentvesting right for you?

If you’d like to explore if rentvesting suits your individual circumstances, come and visit us to find out more.

We’d be happy to help you look at the various ways you can crack the property market.