Switching to Interest Only is the Right Choice?

Hi Everyone,

I think it's a given that I should switch to interest only...but thought I'd pose my situation to you all just in case it's not a good idea.

1) PPOR is valued at $450K. Originally took out $220K P+I loan in 2002 at 90% LVR. $180K owing. I know now I should have done it at IO from the beginning. It's this loan that's the topic of this discussion.

2) Recently purchased another property for $620K. Loans are interest only using equity in PPOR, 80% LVR. Will be an investment property for 5 years.

3) Planning to swap between PPOR and investment property in 5 years where current PPOR will become investment property.

4) Enough cash to cover $180K owing on PPOR and put into 100% offset account.

For $350 renegotiation fee, I feel that I should change the $180K owing PPOR loan to IO for 10 years. If I don't, I'll be paying back $13K+ principle only annually due to cash balance!? This will make it even less tax effective when comparing value of current PPOR vs loan remaining five years down the track (I may need to look at selling to unit trust...)

Looking forward to your thoughts and ideas!

Cheers.
 
haha...I've already posed my request to SWhite...erm, bank manager earlier...making sure no other components of my loan change apart from P+I to IO. Thanks!!!
 
Just got off phone with bank manager. It looks like apart from $350 reneg fee, I will need to start paying $5 fee per month for the loan. Also, he needs to also get back to me from pricing to see if my 0.7% discount will still remain.
 
He's coming back to me tomorrow regarding maintaining the 0.7% discount.

You reckon I should even push waiving of the $350 reneg fee plus the $5 per month account keeping fee? It's ANZ so you think there's much chance?
 
NO....I don't think so. They'll most probably suggest the breakfree package.

As I mentioned to you previously, the package will allow for 1 re-negotiation per year. Your MB should be able expalin this
 
I don't think the breakfree will work for me based on the $180K figure...but if I look at the total ~$490K loan, it may make more sense...but settlement is in a week.

Asked specificlly to my broker again if he can help with fee and % negotiation and he said he can't help.

I understand there's nothing in it for another broker to assist. If any broker is open to assisting nonetheless, it will be appreciated.
 
I've just had a chat to the bank manager, I'm even MORE stuck with unfortunately not too much time to do anything about it before next Wednesday's settlement.

1) First pricing request for the current PPOR $180K loan...not only are they not waiving fees, they're only giving me 0.5% discount as compared to the 0.7% I'm currently getting. He said they don't take into account the new loan starting next Wednesday? I'm REALLY regretting starting off with P+I instead of IO.

2) Second pricing request sent on Wednesday afternoon still not back yet. Wanting Breakfree Package for existing and new loan, $360K value. Hoping for 0.8%. I asked bank manager what's my chances. He said it changes daily. He got good response for someone else yesterday for similar amount but could change. I even gave a few more justification points such as wife having another $150K loan with them and me having around $230K cash with them in their accounts. He said this doesn't help.

Just having the stuck feeling at the moment........... I wish I got another broker to start the process of organising breakfree package earlier...I'm now at the mercy of direct ANZ.

I reckon they'll come back with a default 0.6% breakfree discount...which is going to be another ~$180K per year...~$1000 over 5 years (only paying interest on new loan portion as cash in offset will negate interest for PPOR portion).
 
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Good ending to this saga...managed to squeeze in a 0.77% breakfree package for current PPOR and new investment supplementary loan...settlement tomorrow.
 
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