Interest Only Loan

[WebBoard]

From: Mike .


Question re Interest Only loan
From: Steve
Date: 7/3/00
Time: 12:16:36 PM

Hi

I discovered this forum some weeks ago, and have found it very informative. I appreciate all the tips.

As for my question. I have been researching Peter Spann's strategy, which is that you purchase investment properties using interest only loans. You then keep the properties until you die, and let insurance cover your debts. However, does this mean that I have to approach the bank for an interest only loan that will last until I die? (ie a loan that's length may be 60 years, if I live for another 60 years). Do banks actually do this? I thought most loans had to be paid back in say 30 years.

I am sure I'm missing something, so any advice would be appreciated.

Regards Steve

 

[WebBoard]

Danny

Reply: 1
From: Mike .


Re: Question re Interest Only loan
From: Danny
Date: 7/3/00
Time: 6:05:37 PM

You can take out an investment home loan for say 25 years with interest only for up to 5 years. At the end of 5 years , that lender would normally require you to revert to p+i to repay the debt in the originally contracted loan term ie the next 20 years. However, your option at this point is to re-finance the debt with another lender (or renegotiate with the original lender) to get another 5 years on an interest only basis. etc, etc.

 

[WebBoard]

Steve

Reply: 1.1
From: Mike .


Re: Question re Interest Only loan
From: Steve
Date: 7/4/00
Time: 9:16:15 AM

Danny: You can take out an investment home loan for say 25 years with interest only for up to 5 years. At the end of 5 years , that lender would normally require you to revert to p+i to repay the debt in the originally contracted loan term ie the next 20 years. However, your option at this point is to re-finance the debt with another lender (or renegotiate with the original lender) to get another 5 years on an interest only basis. etc, etc.

Steve : Ok.. so you'd need to refinance all of your loans every 5 years? Are there any banks that would continually do this? I assume something like this would is possible, but it just seems to be very tricky. I can see Peter Spann's argument up to this point, but here is where it's falling down for me.

(Or is refinancing your loan in this instance an easy thing to do?)

Regards Steve

 

[WebBoard]

Jeff

Reply: 1.1.1
From: Mike .


Re: Question re Interest Only loan
From: Jeff
Date: 7/4/00
Time: 3:22:09 PM

If you work a line of credit like an interest only loan you can have one from 25 yrs (major banks) thru to forever (AMP etc)

Cheers Jeff

 

[WebBoard]

Gary

Reply: 1.1.1.1
From: Mike .


Re: Question re Interest Only loan
From: Gary
Date: 7/4/00
Time: 10:51:39 AM

Aussie home loans - http://www.aussiehomeloans.com.au/ - have an 'Asset Power' loan which is a 20 yr interest only loan.

Gary

 

[WebBoard]

Steve

Reply: 1.1.1.1.1
From: Mike .


Re: Question re Interest Only loan
From: Steve
Date: 7/4/00
Time: 12:02:03 PM

Hi

This is what scares me a bit about Peter Spann's approach. Sure, it may be straightforward to get an interest only loan for a few places (for up to 20 years) but as you get more and more loans, it seems that banks & other lenders would be more hesitant in lending you money.

I suppose I'm scared that in 20 years I'll have 30 different lending institutions banging on my door asking for their loans to be repaid. Is this where you just need to sell some of your homes to pay off your debt? I keep thinking there must be a better way. Or am I underestimating my ability to continually get refinancing?

Cheers Steve

 

[WebBoard]

Les

Reply: 1.1.1.1.1.1
From: Mike .


Re: Question re Interest Only loan
From: Les
Date: 7/4/00
Time: 1:32:07 PM

G'day Steve,

Possibly the missing link is the fact that the mortgage will remain (near enough to) the original mortgage, while the IP's value and rental income continue to march upward. Thus in 5 years, you may well be re-financing (say $200k) on a property that was originally $225k, and is now worth $320k. With rents (typically) also rising over 5 years, your ability to service each loan keeps getting better (unless there is a HUGE difference between the Interest Rate of the loan you HAD vs the Loan you are about to take).

Regards, Les