Finance risk while growing a large portfolio

Thanks for the post Redom. Just for everyone's benefit, I'm caught up in this right now. The reasons:
- A reduction in base salaried income as I transition across to a remuneration structure with more incentive and greater upside but less base.
- Changes in credit policies from days of yore

So a lot of my IO loans are transitioning across to P&I and there's not a lot I can do about it despite falling IRs, or if there is it comes with strings attached like higher IRs or greater concentration risk with existing lenders etc which I try to avoid for other reasons. Or maybe it's just my broker! :)

Not a biggie for us right now because the cashflow is fine to handle it and of course IRs keep going down. But certainly something to watch out for - I definitely wish I had met a broker (and/or this forum) who knew what they were doing on this front early on - it would have helped a lot. And it would have made our current PPOR demo and rebuild plan more comfortable for us.
 
Thanks for the post Redom. Just for everyone's benefit, I'm caught up in this right now. The reasons:
- A reduction in base salaried income as I transition across to a remuneration structure with more incentive and greater upside but less base.
- Changes in credit policies from days of yore

So a lot of my IO loans are transitioning across to P&I and there's not a lot I can do about it despite falling IRs, or if there is it comes with strings attached like higher IRs or greater concentration risk with existing lenders etc which I try to avoid for other reasons. Or maybe it's just my broker! :)

Not a biggie for us right now because the cashflow is fine to handle it and of course IRs keep going down. But certainly something to watch out for - I definitely wish I had met a broker (and/or this forum) who knew what they were doing on this front early on - it would have helped a lot. And it would have made our current PPOR demo and rebuild plan more comfortable for us.

Your incentive income might be ok before interest rates go up anyway. If you make your target and get the commissions/bonus over 2 years many lenders will accept the 2 year history.

Im looking at making a similar role change with more bonus for more upside, but lower base. Kind of happy with my portfolio now and can live with no more loans if I can earn more and pay some off or build a buffer for future investment.

But I have 4 years on my IO periods and 9 years on one, so a bit more comfort there.
 
Well said. I have always been leveraging in flat and down markets.

Now that we're in an up market and rates are as low as ever, I am actually cashing out of some assets and paying down debt.
 
Its also helpful to be with lenders that don't require full applications or reassessments for interest only term extensions (CBA, Westpac). Some lenders better than others in the I/O space - there are some that offer 10 or even 15 year I/O terms.

If I am only 1 or 2 years into the 5 year IO period with CBA or Westpac, can I request for an extension now (say to 10 years) without the lender requiring full application or reassessment? Or can this only be done closer to the end of the 5 year period?
 
If I am only 1 or 2 years into the 5 year IO period with CBA or Westpac, can I request for an extension now (say to 10 years) without the lender requiring full application or reassessment? Or can this only be done closer to the end of the 5 year period?

For the time being, yes you can. It wouldn't surprise me if this came under review in the future though.
 
If I am only 1 or 2 years into the 5 year IO period with CBA or Westpac, can I request for an extension now (say to 10 years) without the lender requiring full application or reassessment? Or can this only be done closer to the end of the 5 year period?

For the time being, yes you can. It wouldn't surprise me if this came under review in the future though.

No you can't for 10 years, maximum IO period without credit approval is 5 years. But you could extend 5 years no worries.
 
No you can't for 10 years, maximum IO period without credit approval is 5 years. But you could extend 5 years no worries.

My apologies, I interpreted the question to be can you roll over to a total of 10 years I/O (add another 5).

I do wonder if the CBA and Westpac will be reviewing these policies in the near future. I'm also wondering (in more general terms) if the line of credit products (I/O for the life of the loan) is going to come under review eventually.
 
I also wonder and really hope we don't, would become a PITA and waste a lot of time.

If the LOC was to stay as is and a lot of policy changed on the variables, wonder if you would see increase in LOC's. The 'on demand' would still have too keep you at bay.
 
Which takes us to the next logical step, it's all good and well to renew an I/O period on your existing loan, but how long with lenders allow that to go on for? Will there be a limit to how many times you can roll over an I/O period?

Simple answer for investors would be to refinance to a new lender, starting the loan term and I/O period from scratch. Then this leads to now allowing I/O on refinances.

I don't think that will come to pass. By the time things get this extreme, we'll likely be well beyond the current investment boom and the regulators will have retreated back into their caves. The markets will be flat and lenders will be looking for ways to win business back again.

I should probably stop scaring people with my crazy man ranting for now. :D
 
My apologies, I interpreted the question to be can you roll over to a total of 10 years I/O (add another 5).

Thanks Peter, that was what I mean (ie. adding another 5 years). Is there a requirement that the property currently must be an IP or can this be done on existing PPOR as well? Somehow I have in my mind that for PPOR the max IO term is only 5 years.
 
A lot of lenders have a 5 year restriction on I/O periods, but CBA isn't one of them (for the moment).

I haven't seen any restrictions on I/O for PPORs yet, but who knows what tomorrow brings!

The best advice I can give right now, it to call your broker or banker before making any lending related commitments. Things are changing daily.
 
I think the problem of I/O loans expiring to P&I is a bit over rated if structures are applied correctly from the beginning.
That is what I was thinking too.
There are more issues in life to worry about than worrying about mortgage payments after 5 years!
In this 5 year time, you will have increased equity & rents to handle P&I payments. If not, there is re-financing option.
Any decent broker should be able to deal with it... if they can't do anything about it then they shouldn't be in the business. It is their problem not mine to worry about :p
 
Any decent broker should be able to deal with it... if they can't do anything about it then they shouldn't be in the business. It is their problem not mine to worry about :p

I don't understand that comment. At the end of the 5 years if you want IO again and you are with a lender that requires a new application OR you decide to go elsewhere, the broker can not control what your financial situation is at that time! There is only so much polishing and bending of the rules, sometimes it just wont qualify for a myriad or reasons.

That's said I do agree with your sentiment that it's 5 years away and most of the time it just isn't an issue.
 
That is what I was thinking too.
There are more issues in life to worry about than worrying about mortgage payments after 5 years!
In this 5 year time, you will have increased equity & rents to handle P&I payments. If not, there is re-financing option.
Any decent broker should be able to deal with it... if they can't do anything about it then they shouldn't be in the business. It is their problem not mine to worry about :p

I think you're quoting me out of turn there...

People shouldn't spend time worrying about what their loan will look like in 5 years time, these things do have a way of working themselves out.

But you can't hold anyone else if things don't go your way however. If your circumstances don't allow you to renew an I/O loan in 5 years time, it's probably not the brokers fault. Seems to me that most people who get into trouble tend to have made some decisions along the way that lead them there.
 
I didn't mean holding brokers responsible.
Brokers should be able to find the best solution at that point in time.
 
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