I was bopping along to some Flight of the Conchords whilst emailing some clients the other day and a very appropriate song came on. "Inner city pressure" (here is the link if you want to reminisce some great kiwi music of a decade ago)
It got me thinking about the "Interest Only Pressure" that a lot of people are facing from the banks at the moment and what we can do to put more options in the hands of those borrowing and not just being dictated what can be done by the current change in regulations.
So what's going on with interest only?
Simply put the banks are coming under pressure from the Reserve Bank to reduce the amount of time people are allowed interest only.
You may have heard of farmers coming under pressure to pay principal off their lending, well property investors and home owners alike are seeing the same pressure from their banks to end interest only terms and repay principal.
The reasoning behind it is that they need to see people reducing debt and there is a belief that the housing market might be being supported by interest only loans or that families are extending their borrowing rather than reducing it like the Reserve Bank would prefer them to do.
If you've got lending on interest only you are going to get some push back from your bank about extending this. You'll have to provide a very good reason for doing so and in a lot of cases they'll ask you to revert to Principal and Interest once your interest only term ends.
What can you do about it?
It might surprise you to hear that I'm going to suggest you need to talk to us about this. There are three courses of action
- Accept what the bank says and pay principal and interest.
- Provide a good explanation and get your interest only term extended - probably on for a year
- Refinance lending to another bank who will reset your interest only period
We think there is a real place for having your lending on interest only. Whether it's to maximise your tax benefits on a rental property or to give you the flexibility on loan repayments to fit your income or the work you want to do to your property. As always we believe the choice should be yours and we're committed to keeping it that way.
Click this link to get in touch and we'll help make sure you're getting a fair deal
We're always here to help
Adam, Claire, Greg and the My Mortgage Team