Why is the Rate on My Investment Loan Increasing?

Launch Finance - Why is the rate on my investment loan increasing?

You may have noticed over the past few months that lenders are becoming stricter with investment lending. The Australian Prudential Regulation Authority (APRA) regulates banking policy and APRA has required that lenders tighten their investment lending policies in a bid to prevent or slow an overheated property market.

Some lenders have responded by increasing interest rates on investment loans, and some lenders are now no longer offering interest only loan products to investors. If you own an investment property and are paying interest only, have you considered how this will affect your investment strategy when your current interest only period expires?

Who does this affect?

This new change affects all new AND existing investors seeking an interest only loan. There are fewer lenders and interest only products in the market.  For existing investors, once your interest rate period is over, your lender may not renew the interest only loan and you then must start to pay principal and interest repayments on the loan. It is best to weigh up your options now before getting to the end of your interest only period.

What are your options?

Refinancing is ideal if your existing product is no longer competitive with those that are available in the market. When switching loans, you can choose to either lock in your rate or go with a variable rate product. When you lock it in with a fixed rate loan, you’ll be able to protect yourself temporarily from the increases that may come in the foreseeable future. However, ensure that you can still afford to repay the loan once the fixed rate period is over.

It is advisable to speak to your accountant regarding the tax implications of changing from an interest only investment loan to a principal and interest loan.

If you currently have an interest only investment loan and would like to know more about your options, please get in touch with one of our experienced brokers today to help you make the most suitable move possible.