APRA have brought in new rules making it virtually impossible to roll from one interest only period to another.
Loans have a 30 year term – and if you do opt for 5 years interest only – then after that 5 years the loan must still be paid back – but in 25 years.
This means that Interest Only is like a payment “holiday” with a very nasty sting in the tail when payments jump markedly.
And … loan servicing is calculated on the residual 25 years higher payments NOT the cheaper interest only payments.
Interest Only loans have lower payments (initially) BUT your borrowing power is in fact considerably less.
This has been a game changer for anyone considering an Interest Only loan.
My advice is very simple:
IF … you intend to hold the asset long term – bite the bullet and start with a Principle and Interest loan right at the start.
Only consider Interest Only for a short term hold.
Alan Heath