Interest Only vs Age

Hi,

As far as I understand, buy & hold investors would normally set up the loan with an initial IO terms, then extend this IO term when it expired (ie: after 5 years), and repeat this process to have the IO term for as long as it could until wind down.

Now if the age of the investor is in the 30 or 40, the loan term (ie: 30 years) may not be a problem, but what if they are in the 50, 60 or maybe 70, would the bank use Age as a factor to reject the extension of the IO term...???

Super.
 
as far as loan term goes most lenders now ask for a simple explanation as to your exit strategy if you are getting on a bit. no difference for IO.
Hi,

As far as I understand, buy & hold investors would normally set up the loan with an initial IO terms, then extend this IO term when it expired (ie: after 5 years), and repeat this process to have the IO term for as long as it could until wind down.

Now if the age of the investor is in the 30 or 40, the loan term (ie: 30 years) may not be a problem, but what if they are in the 50, 60 or maybe 70, would the bank use Age as a factor to reject the extension of the IO term...???

Super.
 
Would you please elaborate on this, thanks.

I thought if the IO term is repeatly extended (ie: by 5 years), then the end date of the loan term would also extended (ie: by 5 years) as well, isn't this the case...:confused:

Super.

In most cases, extending the IO term of the loan will mean a shorter P&I period. Lenders don't turn a 30 year loan into a 35 year loan by just extending the IO period. In a lot of cases they will extend to a total of 10 years IO and 20 years P&I.

To acheive the sort of thing you're talking about, a whole new loan needs to be written. This can be with the same lender in some cases, but it's usually easier with new lender.
 
If the bank doesn't extend the IO term then you'll just refinance elsewhere.....so they will usually give it to you

That is what my concern is. If at that time I am 60 year old, I don't think the (ANY) bank would give me a loan with 30 year term (+ 5 years IO).

But if they shorten the loan term (ie: 10 year term), then I may get reject due to the serviceability for the monthly repayment.

Which end up I won't be able to get any more IO loan due to the age...:(
 
That is what my concern is. If at that time I am 60 year old, I don't think the (ANY) bank would give me a loan with 30 year term (+ 5 years IO).

But if they shorten the loan term (ie: 10 year term), then I may get reject due to the serviceability for the monthly repayment.

Which end up I won't be able to get any more IO loan due to the age...:(
Have you thought about what you're saying?

If you have been highly geared into property for 30 - 40 years and you still need IO finance, then you are doing it wrong or you are in the wrong investment class. Why continue with a failed strategy?

And another thing: If you are not fully self funded by retiring age the LAST thing you need is neg geared property when you talk to CES. If you ARE fully funded, why make more work for yourself?
 
As previously stated, being able to borrow at 60 will depend on being able to show a reasonable exit strategy.

As an example, I'm currently writing on a loan for a 73 year old. He's still working so his tax returns show serviceability today, but it's reasonable that he'll retire in the next few years.

We've shown that his business interests mean that he'll be able to draw the same income for another 5 years after he ceases to work (it's structured to guarantee this). He's also go sufficient assets that he can pay down debt when he does retire.

Everyone is different. In your case, it's reasonable to expect that you can afford to borrow the money today, and you should have given consideration to your 5 year plus strategy. This needs to be communicated to the potential lender with appropriate evidence to back it up.
 
Have you thought about what you're saying?

If you have been highly geared into property for 30 - 40 years and you still need IO finance, then you are doing it wrong or you are in the wrong investment class. Why continue with a failed strategy?

And another thing: If you are not fully self funded by retiring age the LAST thing you need is neg geared property when you talk to CES. If you ARE fully funded, why make more work for yourself?

All along I strongely believe that I need to have IO loans for my whole investment portfolio until I execute my exit strategy (ie: sell a few to cover the rest). So if I retire on the 65th birthday, before that date, my portfolio is still in -ve geared and I would expect to serve an IO loan only. But after the exit strategy is done, the whole portfolio would expect to turn into +ve geared, and I would rely on it for retirement.

Hope I don't get it wrong here...:eek:

Super.
 
All along I strongely believe that I need to have IO loans for my whole investment portfolio until I execute my exit strategy (ie: sell a few to cover the rest). So if I retire on the 65th birthday, before that date, my portfolio is still in -ve geared and I would expect to serve an IO loan only. But after the exit strategy is done, the whole portfolio would expect to turn into +ve geared, and I would rely on it for retirement.

Hope I don't get it wrong here...:eek:

Super.
I make no claims to superior knowledge, just a little age related experience. My experience would indicate that you will have no wish to undertake this style of investment at that time. But why worry now anyway?
 
A lot of ppl might be reading this post and think it's a walk in the park to refinance back to a 30 years I/O loan ( I/O and P/I in this example won't make a difference) at the experienced age of 60+ , but as part of NCCP responsible lending and as some of the above brokers mentioned....lenders WILL ask about your exit strategy; how can you keep making the repayment after you retire? do you have enough in your super? are you planning on selling and down sizing etc?


It's good to know and plan well ahead; so it's understandable why the lender would ask.


Regards
Michael
 
just tell them property doubles every 7 years and it will be paid for by harvesting the equity. reap and sow baby!

seriously tho being a bank they should understand more than anyone the implictions of the discounted future value of the debt.
 
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