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How to survive an expiring interest-only loan
If you’re an investor, chances are you have an interest-only loan, but once the loan period ends, what happens? Here’s what you can expect.
Moving from an interest-only loan to principal and interest loan can be a bit of a shock if you are not prepared for the higher repayments, but there are steps you can take to prepare yourself for the transfer.
Investors can expect an interest-only loan to last anywhere between one and five years of the loan term. After this, they can expect to receive notice of the loan type changeover, with the next payment to be higher than it previously was on interest-only.
According to a statement from Omniwealth Finance, there are steps borrowers can take to lessen the impact on cash flow:
1. Contact
Check in with your lender and confirm the date your interest-only loan ends. Then, set a reminder for three months before as to give yourself plenty of time to figure out where you can go from there.
2. Think
Take a step back and think if you want to continue with your current lender on a principal and interest loan, or if you want to continue reaping the benefits of an interest-only loan. If you’re happy with the lender, switching over to a principal and interest loan is an option, but if the appeal of an interest-only loan is something you are interested in, you may need to look for a new lender.
3. Search
If you want to find a new lender, you can take on the research process yourself, or you can use the skills of a mortgage broker to help you out. The statement from Omniwealth Finance noted that a complete review of your situation should be taken before acting, as it probably has been up to five years since the last review.
“As a borrower, it is always important to remember that you are in control of your mortgage and you don’t have to stay with your current lender. So, if you receive a letter telling you that you ‘must’ switch to principal and interest, review the checklist and weigh up your options,” the statement from Omniwealth Finance noted.
