APRA is flexing their muscles – again.
It is an extremely interesting time right now in the Finance Market. APRA (the Government Regulatory Body who oversees the Banking Industry) is flexing their muscles again.
Last year they hit the Banks and Lenders in relation to Investment Lending. This year they are doing that again, but this time they are Targeting Interest Only Lending.
Most Lenders are charging more in Interest on Interest Only Loans. As these types of loans are generally sought for Investment Lending, it would appear that this is another crack at the Investment Lending Market.
The regulator said:
“In an environment where many interest-only loans are now clearly more expensive than principal and interest loans, lenders and mortgage brokers must carefully consider the implications of providing borrowers with interest-only loans.
“While interest-only loans may be a reasonable option for some borrowers, for the vast majority of owner-occupiers in particular, an interest-only loan will not make sense.”
Interest Only lending for Investment purposes is generally done for Tax Purposes.
The idea is this; Whenever you have an Owner Occupied Mortgage and an Investment Mortgage; you may be better off to pay off the Owner Occupied Loan first. This is because it is not a tax deductible liability. Any Principal that you would pay off the investment loan should be directed to the Owner Occupied Loan first.
Interest Only Loans on Owner Occupied properties are becoming more difficult to obtain. With proper financial advice they are still possible but in the long term it may make future loan repayments substantially more expensive.
I live and breathe this myself personally in that it’s not only the loans I setup for clients; I also own various investment properties myself.
All the more reason to speak to your Broker and make sure you have that conversation that outlines all of your needs and requirements.
I am here to help and if you’d like to speak more or organise a meeting, please let me know.