Property Investment Loans- Interest only or Principal and Interest

Property Investment Loans – Interest only or Principal and Interest

Over the past 10+ years investors have had it good with easy cheap money available from the banks. This is slowly changing with money becoming harder to get and at lower levels than 2 years ago (Assuming income is as it was). Yes, interest rates are low, and this probably won’t change significantly over the next 12-18 months but there are a few costs which are slowly eating away at your income stream. One which could have potentially quite damaging results for the marginal investors, it is always the marginal investors who seem to be most affected, is a change from interest only payments to P&I payments. How bad is this, let’s have a look;

Investor loan of $1,000,000 (not untypical in Auckland)

Interest rate 4.55% fixed for two years

Interest only $45,500

P&I $61,750

A 35% increase, this is massive, and which will hurt a lot of people.  Now this doesn’t apply to everyone and some people will be able to move to a lender who can still do interest only, but it will make people sit up and take notice. This all comes at a time when rates, maintenance, petrol, food and everything else seems to be going up.

Interest rates

Rates have eased a little in the past month, by way of example Sovereign has recently announced a 3 year rate of 4.39%. 2 year rates are generally around 4.29%.