Whether it`s property investors or homeowners, some people are applying to buy a home in an "interest-only" model to ease the monthly supply burden. The problem is that some mortgage lenders don`t know enough about the model, or even mistake it for "endless" interest-only loans, which can suddenly come under heavy financial pressure when the "non-interest-bearing" deadline reaches. What can you do if your "non-interest-bearing" repayment model expires and is automatically converted to the "interest-plus-interest" model?
Generally limited to 5 years
Mortgage agencies in Australia generally accept customer application for a 5-year "non-payable" repayment model, and some mortgage agencies may allow customers to renew their applications for an additional 5-year period. In other words, this contribution model cannot be "perpetuated" and will always end. This means that mortgage recipients applying for a "non-interest-bearing" repayment model between 2015 and 2016 will face a greater financial burden over the next year and will need to "provide interest and money" for the mortgage.
According to the Financial Products Comparison website Finder, there are about 730,000 mortgage lenders in the country who will automatically be converted to the repayment model of "interest-and-money ", involving an astronomical figure of up to A $29.2 billion.
Provision of interest How much more?
If so, how much will the monthly repayments increase after the need for "interest and this" for mortgage lenders who are simply "out of interest "? Graham Cooke, manager of Finder`s Insights, roughly calculated that taking the average mortgage balance of A $395,000 from 2015 to 2016 as an example, at the current average mortgage rate of 4.8 per cent, the monthly repayments will increase by A $300, or A $3,600 overpaid for the full year.
The "extra" repayment of $300 a month doesn`t appear to be too much on the surface, but if your mortgage isn`t $395,000, but $1 million, then your extra expenses will be a bit higher.
Based on the $1 million mortgage, the monthly repayments will be $789 more, or $9,468 in additional contributions for the year. If only one person in your family has a full-time job, the annual pre-tax income is A $100,000, and the extra repayment expenses are equivalent to 5.9% of the family`s annual pre-tax income.
Is there any chance of successful application?
What can you do if your "non-interest-bearing" repayment model expires and you don`t think you can afford a new one? Mr Cook said many homeowners and property investors would seek to move to another "non-interest-bearing" mortgage, while others would opt to negotiate with mortgage agencies to give them a better rate.
People in the realestate industry are reminded that self-residents may find it difficult to approve a "non-interest-bearing" repayment model, especially when applying for a mortgage because they do not have the same rental income as property investors. As the saying goes:" Life is different ", property investors have a better chance of turning to another "interest-free" mortgage and are even expected to receive a discount on interest rates from mortgage agencies, with a reduction of up to 1.8 per cent.
Worst-case scenario: Sale of property and repayment of debt
The worst-case scenario is that you fail to transfer to a new "pay-out" mortgage, and you are incapable of paying for the extra contribution, and you may end up being forced to sell off and pay for it.
A survey by ubs in 2017 found that as many as a third of respondents had little idea of how the "non-interest-bearing" repayment model works and were not "alerted" to the need for higher monthly payments once the five-year deadline for non-interest-bearing payments had reached.
On the other hand, a large number of mortgage borrowers may lie about their higher income when applying for a mortgage in order to improve their chances of obtaining a mortgage. I`m afraid these mortgage lenders will be under even more financial pressure when they`re facing`interest and money`.
