Interest only loans, for both investors and homeowners has been a successful strategy for many. However, this is now much harder to implement. Banks are charging more for interest only loans and reducing the number of interest only loans available. Many banks are requiring “full income verification” for interest only loan applications, regardless if they are for investment or PPR (Principal Place of Residence).
Given this change, it’s time to get savvy and find ways to thrive within the new parameters.
Reducing the amount of interest you pay is smart. It accelerates your wealth creation. Regardless if the loan is for an investment property or your PPR, look for ways to be efficient and reduce the amount of interest paid.
One of the easiest ways is by increasing the frequency of your repayments from monthly to fortnightly, or even weekly. You will pay an extra payment, because there are 52 weeks in a year, which equals 26 payments (or one extra). If you pay your mortgage monthly, like most homeowners you’re making 12 payments a year. When you enroll in a bi-weekly payment program, you’re paying half your monthly amount once every two weeks instead or, in effect, 13 monthly payments.Doing this for the duration of the loan can shave off several months. There is a caution here- ensure your bank doesn’t charge extra fees for this as some do!
Shop around and refinance if necessary to get a cheaper rate. Once you find one, negotiate back with your existing lender bank first. Using an experienced broker can save you the legwork, time and effort. Ensure you understand why they suggest a particular loan. There is way more to selecting a loan than just the face value interest rate.
Make extra payments when you can. Round up the payment amounts, deposit extra savings when you have it available. This all builds up your equity which can be used as a deposit for your next investment.
Over many years we’ve worked with numerous finance providers. We have filtered out those we trust – who are experienced and qualified to advise our loyal clients. If you would like a referral please click here to email me.