Across Australia there is hundreds of billions of dollars in loans that are interest only. Could these borrowers be hit with interest rate increases at the same time as their loans convert to Principle & Interest?
The RBA has is warning there could be financial stress for households with high level of debt. They estimate there is a large proportion of interest only loans due to expire between 2018 and 2022. This period is also when independent analysists are predicting the RBA to start raising the cash rate which will in turn see the interest rate rise.
The RBA is concerned that when the interest only periods expire the borrowers will not meet the current lending policy to extend their interest only period. They would then be on principle & interest repayments which they might find difficult to manage. They do say it would only be a “relatively small proportion of borrowers” who would potential experience “some financial stress” from this potential scenario.
To make the problems worse some people might have bought properties which have not grown in equity (such as apartments in over-supplied suburbs). This would make it difficult to refinance to improve their cash flow.
If you think you might be a situation such as above in a few years’ time we can take a look at your finances now and see how we can minimise the impact of the future conversion to principle and interest repayments. We can look at your home loans and your investment loans to ensure your structure will be suitable in the future.
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