This is in your interest

A certain “set and forget” mentality slips in with mortgages. Money leaves your account to nibble on your mortgage. Meanwhile, you get on with other things. But here’s the question — if you have an interest only mortgage (IO) when does it switch to principal and interest (P&I)?

Don’t know?

Well, you’re not alone. This crucial detail gets lost for a lot of us.

IO loans are particularly appealing to investors with their flexibility and features to help maximise negative gearing. But here’s the kicker: the RBA estimates that about 1.5 million borrowers over the next few years will compulsory switch from just paying interest to P&I according to the banking sector update. Yep—it’s in your contract. This may raise monthly repayments by up to 40%, adding to the woes of Australia’s already heavily indebted mortgagees. It’s going to be big: 30% of existing mortgages are currently IO.

Note to self: Check my contract!

If any of this is ringing alarm bells reach out to me. I can help you find out if and when you’ll go to P&I, and work out an action plan for managing the transition.