We’ve just found out we’re expecting twins and we have a 2-year-old so we’re wondering should we look at transferring our home loan from principal and interest to interest only for 12 months or so. Is this kind of thing possible and what should we be aware of, thank you?

Hi Steph,

First congratulation on the addition to your family.

Most banks should allow you to switch to Interest only repayments for 12 months, all you should need to do is call your lender or Mortgage Broker and explain the situation to them and ask them to make the switch. You may need to fill in some forms and pay some fees to make the switch over but it should be fairly easy.

Things to be aware of;
- Even though you will be reducing your repayments your lender may actually increase your interest rate when they switch you to interest only so in theory it will be costing you more money.
- Ask them what fees (upfront and ongoing) you will need to pay to switch to and from Interest Only
- Ask them what your default interest rate will be when you switch back to make sure it is the same as what you are paying at the moment or less.

Hope this helps.

Good luck with the new additions to your family.

Regards
Nathan

Hi Steph,

Congratulations and great question, there are couple of options .

One of which is the one you mention which is going back to interest only repayments for 12 months. The strange thing with this option at the moment is that most lenders due to current regulations will impose there higher "interest only" rate on your loan and you repayments may not go down that much.

The other option is to ask your lender if they are willing once your twins are born to reduce you repayments for 12 months to half the current repayments and "capitalise" the repayment shortfall onto the end of the loan. So for example instead of a 30 year loan term the loan become 30 ye and 6 month term. Several lenders offer this and call it the "pregnant pause" on repayments

The third option which I think is often the best because you remain in control is to ask for a small increase in the loan equal to 6~12 months repayments. Then when the happy day arrives try to keep up the current repayments and only draw on the spare cash if required. This keeps up the discipline of the repayments with the safety of the spare funds if required. Most mortgage brokers should be able to assist with setting this up so your not paying interest on the extra funds if you don't need them.

Hope the suggestions help

regards Albert - Awesome Lending Solutions