What Happens After Your Interest Only Period Finishes

Blue Sky Mortgage & Finance, a Boutique Mortgage Broker on Queensland’s Gold Coast.

Recently a client was referred to me as they had receive a letter from the Bank, now I can’t say which bank but they were a big four. The took out their mortgage for the purchase of their first investment property seven years ago. They had seen a mortgage broker when they purchased the property and set up the repayments and loan to be interest only for the first five years. After five years they had opted to go interest only for another two years.

So seven years after purchasing the property which was located on the Gold Coast, they received this letter. The letter explained that the interest only period was expiring and that their loan would automatically revert to principle and interest repayments. Now that doesn’t sound so bad but stick with me. When they first took out the mortgage it was a 30 year term and their repayments were calculated as such. Now when the happy couple had been making their repayments of interest only for seven years the principle of the loan had remained the same all this time. Once the loan reverts to principle and interest repayments, the new repayment amount is calculated off of the remaining term of the 30 years, in this case it was 23 years remaining.

The unfortunate part of the story, the couple had just given birth to their second son, and mum wasn’t working. Seven years earlier mum worked and pulled in a good wage, however now with two kids and a single income, things were a bit tighter.

Once the new repayments kicked in they were concerned but being able to afford their mortgage and keep their house on the beautiful Gold Coast. Their previous mortgage broker had moved on from the Gold Coast so they found a new one as soon as possible and booked in for an appointment. After caring doing his due diligence this new boutique mortgage broker on the Gold Coast assisted in refinance they property and got a new mortgage. The best part was that they found a new lender (not a big four bank), they got a significantly lower interest rate, by moving their mortgage they saved $800 on their repayment and subsequently made things a lot easier on the house hold budget.

So when you are purchasing a property whether it be your first home, an investment property or you are up sizing the family home, it is important to get a clear understanding of the loan features you are taking out. Ask plenty of questions about the loan, have clear and long discussions about your future plans and goals so that they can be considered when selecting a suitable lender and product for your property buying experience.

And remember to regularly carried out a “home loan health check” at least every two years. The banks very frequently adjust their interest rate independently of the reserve bank. They also from time to time, have incentive for refinancing your loan from one institution to join them. So best to keep in touch with your mortgage broker if you want to hear about these incentives.

If you are on the Queensland Gold Coast and would like a Home Loan Health Check, please don’t hesitate to contact us for your free no obligation review.

Blue Sky Mortgage & Finance, Gold Coast.