Considering a shift from a principal-plus-interest (P+I) payment structure to interest-only payments? Navigate the process with insights on lender policies, loan types, and your financial situation.
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“How easy is it to shift from P+I to Interest only?”
(Original question on Reddit)
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Shifting from a principal-plus-interest (P+I) payment structure to an interest-only payment plan can vary in difficulty based on your lender, loan terms, and financial situation. Here are a few general considerations:
Lender Policy:
Contact your lender to understand their policies. Some lenders might allow adjustments in payment structures, while others might have strict guidelines or restrictions on changing payment plans.
Loan Type:
The type of loan you have matters. Mortgages, for instance, may have more rigid structures, while personal loans or certain business loans could be more flexible.
Financial Situation:
Lenders might want to reassess your financial standing before allowing such a change. They might require evidence of why you want to switch (like financial hardship, investment opportunities, etc.).
Potential Impact:
Consider the impact on the overall cost of the loan. While interest-only payments may lower monthly payments in the short term, they could increase the total interest paid over the life of the loan.
Timing:
Depending on where you are in your loan term, the ease of shifting could vary. For example, it might be easier to make changes earlier in the loan period.
Documentation and Fees:
There might be administrative work, paperwork, or even fees associated with changing the payment plan. Make sure to understand these beforehand.
It’s crucial to discuss this with your lender. They can provide you with the most accurate and relevant information based on your specific loan and circumstances. Always consider the long-term implications of any changes to your loan structure, as it could impact your financial situation significantly.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
