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Interest Only Loans. Is it still doable?

We all know refinancing Interest Only has become a whole lot more difficult since the tightening of credit as a result of regulatory changes and the recent royal commission.

Some people are feeling trapped in the loan they currently have, unable to refinance due to all the new lending rules. While it is harder to do this, it is not impossible.

We were recently introduced to clients who had 4 investment properties coming out of an interest only period. They had been unable to extend their interest only period with their current lender. They where faced with the prospect of selling one or two of their properties.

Something they did not want to do. They had tried other major lenders without success.  

Working with their accountant, we at Yellow Brick Road South Morang, where able to find them a 2nd tier lender who was happy to offer them an Interest Only loan. Surprisingly for them, it came with a lower interest rate than what they had been previously paying.

Yellow Brick Road at South Morang specialises in working with 2nd tier lenders. Over the years we have acquired an understanding of what they have an appetite for in terms of lending. It is often very different than the major lenders.

So whether you’re after lower repayments or want to tap into the equity sitting in your home, refinancing can offer a world of benefits.

There are however some things to be aware of so that you don’t find yourself hooked into a bad deal.
Don’t be fooled by the interest rate
Finding a lower interest rate doesn’t necessarily mean you’ve scored yourself a better deal. In fact, a product with more features may cost you a bit more in fees or interest, but could save you more in the long run.

Honeymoon rates are just that
Don’t be lured by offers with discounted introductory rates unless you’ve calculated the savings over the life of the loan. While a loan with a discounted interest rate seems a tempting offer, it’s only temporary.

Be aware of the fees
One of the main purposes of refinancing is to lighten the financial burden, however, that doesn’t mean that it’s not going to cost you. There are many fees involved, which may include discharge and application fees, a valuation fee, land registration fee, and mortgage insurance. You have to ensure that the costs involved are not higher than the savings, to make the process worthwhile.

While there are traps to avoid, a little expertise can take the stress out of refinancing to save you thousands, fund that renovation, or simply find a loan that suits your life a little better. We at Yellow Brick Road South Morang can guide you through the process.

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