Would like to change IO to P&I, Possile?

[want2bewealthy]

Hi there.

We currently live in a house (on an interest only loan) where we fixed the interest rate at 6.8% 1 year ago, with two years still to run.
We would actually like to begin paying off some principal because we will be living there for a while yet so, is this possible without losing our interest rate?

The particulars:
CBA
MAV Package
Interest only, fixed for 2 years

We would like to either: switch the loan to principal and interest, or add a 100% offset account (offset currently only offsets 1.5% because it is fixed)

Thank you.

 

[Spectre]

w2bw
you should be able to switch the existing loan to P&I without having to break the rate
If you want 100% offset with cba then you'll need to convert the loan to variable or split it.

Usually can be done by getting your broker to email you the form or over the phone 132 224

 

[bluestorm]

check the conditions of your fixed loan. Some allow repayments of up to $10000 per year without penalty.

 

[want2bewealthy]

Thanks guys.

Also, if we do swap to P&I, will we be able to plonk however much we like in-to the loan at any given time via internet banking?

Thank you.

 

[Terryw]

If you start paying off the principle what will happen when you move out later? If you will be selling it may be ok, but if you will be renting it out have you thought about the tax issues?

 

[Peter_Tersteeg]

It's not too much trouble to switch from I/O to P&I, but I suspect it'll be a problem if the loan is fixed. You would likely be breaking the terms of your fixed rate.

I doubt there's be much in the way of penalty costs in this instance, but the variable rate is higher than 6.8% at the moment.

 

[want2bewealthy]

Thanks again everybody.

It turns out we can place $10,000p/a in-to the loan and it will offset 100%
But thats not very much.. We might move in another 2 or so years time but there comes a time where everyone has to ask themselves: At what point do you start paying your home off and living debt free?

I don't want to be in debt my whole life. At least not our home anyway..
Having to come up with $500 a week for the rest of my life does'nt sound like a great idea. It could work, but I'd prefer it to be $0 I'm coming up with to live.

The way I see it is: If we pump money in-to this home loan then we will have more equity, and pay less each week. If and when we move, I am already at the limit of my neg-gearing because as it stands now I receive my entire tax back so cannot be any higher anyway. It is a valid thought however for many other investors with a couple of properties under their belt.

 

[marg4000]

Check carefully before you give up the interest rate you have locked in. At worst, it may pay you to save money in term deposits, partiularly as you are not paying tax.

When the fixed term IO expires you can renegotiate, and in you want cash in the term deposit(s) and pay them off the principal.
Marg