Effect on loan of converting PPOR to IP?

[mckennal]

Hey all,

This is my situation:
I just bought my first property, and plan on converting it to an IP some time in the future. I got a 95% IO loan from ANZ, with capitalised LMI - fixed about half of it for 5 years at 6.5%. When I convert the house to an IP will I need to inform the bank? Will that affect my loan at all? Bit worried after reading the other thread about LMI and converting from P&I to IO.... I'll also want to be buying another IP at around the same time hopefully using ANZ for finance so that might affect it to...

Someone I spoke to said that as long as I kept making the payments ANZ won't care.

Thanks for your help,

Luke

 

[Les]

G'day Luke,

When I convert the house to an IP will I need to inform the bank?

In my recollection, the Bank wants to know EVERYTHING that "substantially" changes your situation. But, since this one will become "Income Producing", I don't see it becoming any kind of major issue. As long as previous IO payments have been made on time, I'd go with "someone" who said:-

Someone I spoke to said that as long as I kept making the payments ANZ won't care

With a modicum of luck, your "95% lend" might have reduced to an "80% lend" (or less) over a 5 year period, so this could put you in good stead with ANZ anyway.

Bit worried after reading the other thread about LMI and converting from P&I to IO

Why are you worried? Are you planning to switch from IO to P&I, then back to IO, within 5 years? If not, no worries !!!

A number of contracts say that "the loan will resort to P&I after 5 years" (or words to that effect). In actual fact, this can also be re-negotiated to become another "5 years at IO" (especially if the LVR has dropped significantly in the last 5 years !!! )

So, it becomes the old story of "don't cross your bridges until you come to them". Things change - just be adaptable, stay tuned to the forum, read heaps of good books, and stay on top of any changes that might give you grief.

Remember, the "other thread" was going from P&I to IO (suddenly, they are NOT paying extra off the mortgage .... so, a little LESS secure from the Bank's perspective). YOU are NOT in this situation - your mortgage is already IO (no payments off the mortgage anyway - if you change to P&I, they feel MORE secure, not less....) It is not the same as your situation - don't sweat it!!

Regards,

 

[Rolf Latham]

Hiya

The mian reason for the advice is that some lenders still charge a differential for their investment loans compared to the normal home loan.

Effectively, you are in breach of contract by not informing them, probably not a big deal though

ta
rolf

 

[mckennal]

Thanks for the replies. Just to clarify, I was not planning on going to P&I any time in the near future (probably never), the only change was that it will be changed from a loan for a PPOR to a loan for an IP.

So, just to make sure, I need to tell them about this when/if it happens? Its probably in my loan docs somewhere anyway.... I guess it would come out when at around that time I want to get another loan.

Thanks all,
Luke