IO for 5 years only - advice?

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From: Brian Fitzgerald


What strategies do people use to get around the limit of 5 years on an interest only loan? CBA tell me this is the limit on an IO loan an I must convert it to PI after that which changes the figures considerably. Any advice?
 
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Reply: 1
From: Anonymous


Just smile and say "that's fine".

and when it comes to yr 41/2 start looking to refinance if they won't roll it over for another 5 of I/O.

As a risk mitigation exercise you might want to stagger the roll-overs maybe take some of your loans for 3, 4, 5 years and maybe some discounted variable at the moment.

Competition is fierce - if they won't do the deal they loose the business.

You're the customer and you remember what that means...
 
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Reply: 2
From: Terry Avery


Brian,

One strategy you can try is to change banks or enquire at another bank and
then let the CBA know that you have made the enquiry and the other bank is
willing to lend you the money. The CBA may then allow another IO period.

I am also with CBA and currently going through that process. You never know,
the other bank may offer a better deal.

Cheers

Terry
 
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Reply: 3
From: Rolf Latham


Hi Brian

Another strategy is simply to go and use a typical line of credit. Downside there may be the cost and also the general inability to fix.

5 years is the industry standard, But there are some that will do 10, like Adelaide Bank.

Ta

Rolf
 
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Reply: 3.1.1
From: Penny Day


Yes, you can fix a "line of credit"....St George "Portfolio loan" is a line of credit which allows you to fix the interest rate for up to 5 years. If you wish, the loan can be interest only indefinitely. All you are required to do is pay the interest monthly. So, if you only pay the interest...it is naturally an interest only payment. you can also pay any amount off the principal at any time. You can also redraw this at any time. Set up costs are reasonable. You can have as many sub-accounts as you want for investment purposes which allows you to clearly separate interest for ATO purposes.
We use this type of loan and have found this very successful.
 
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Reply: 3.1.2
From: Rolf Latham


Hi Alan

Generally, most can not be, especially where discounted rates are involved.

By definition a true revolving line of credit can not be fixed, since the major difference between LOC and standard loan is you can pay it off any time without penalty, and then borrow again to the full approved limit.

Some as said here will do subsplits like Portfolio, but then this is effectively a fixed loan for the period, and not a revolving LOC.

One thing I should have mentioned b4 is that LOCs generally dont have a Loan term. They are however subject to review annually, or every three years. Do the right thing and you would not usually be reviewed.

Ta

ROlf
Rolf
 
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Reply: 3.1.1.1
From: Rolf Latham


Hi Penny

Yes tis a good product.

A little exxy on subsplit fees but very versatile, especially for rate risk management of being able to set say 3 and 5 year rates on loan so that it does not all mature at once.


Ta

Rolf
 
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Reply: 3.1.1.2
From: Cathy Baxter


Penny

Funny I asked my St George loan manager whether we could "fix" our rate on our portfolio loan and he said we would lose the benefits of the LOC so there was no point???

I thought this was strange 'cos they advertise fixed rates of interest on portfolio loans.

Must do more research.


Cathy
 
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Reply: 3.1.1.2.1
From: Rolf Latham


Hi Cathy

Obviously he/she did not think of offering you a split or sub account facility whereby some of your loan remains at variable in the proper LOC, and some is locked away on a fixed rate. They have probably done you a favour by default since fixed rates have come down a fair bit in the last weeks.

A fixed subaccount will cost you $ 10 per month in fees, but may give protection against unexpected rate rises.

Ta

Rolf
 
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