How investors’ monthly loan payments went from $2,000 to $8,700

In the space of a year, real estate investor Matthew Ryan’s monthly payment on a $1.1 million home loan will more than quadruple.

Ryan said he narrowly got a 2.19% interest rate on the loan, while rates were at their pandemic-era low.

He pegged it for one year, and when that term ends at the end of September, he will be considered pegging it back to 4.95%, more than double the rate he had been paying.

In addition to the monthly payments, Ryan would also be transferred from interest-only payments to principal and interest.

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Real estate investor Matthew Ryan provides his predictions for the real estate market as prices and auction settlement rates fall. Video first posted on April 4, 2022.

The double whammy would result in your monthly repayment on that loan going from just over $2,000 to just over $8,700.

He said he could reapply for the loan and try to keep the interest-only repayments, but banks were moving away from such arrangements as the market fell.

“When the market is flying, they say, ‘Oh well, property values ​​are going up, we have security, we don’t care too much if people are paying the principal,’” he said.

“When the market starts to drop, and we’re in the situation we’re in now, they start saying, ‘Oh no, we’re a little worried, we want to start getting some of our money back.’

Ryan said the loan was currently tied to two of his Wellington properties, one on Koromiko Rd in Aro Valley and one on Moana Rd in Plimmerton.

He said all banks were clamping down on interest-only repayments, which he said could become a problem for smaller or less experienced investors and highly leveraged investors as they were also hit by rising interest rates. interest rates.

But he had relatively little debt relative to the value of his portfolio, so higher repayments wouldn’t hurt too much.

“This change from just interest to principal and interest and the increased cost of interest could be quite detrimental to people who aren’t doing this full time.”

The same situation could prove “seriously dire” for recent first-time buyers, many of whom were feeling the sting to renew at rates that have doubled.

This property in Plimmerton is one of two against which Ryan's loan is held.


This property in Plimmerton is one of two against which Ryan’s loan is held.

He said a $1.1 home loan was not uncommon for homeowners during the hectic housing markets of 2020 and 2021.

“During the GFC (global financial crisis), which was the last market correction, interest rates started at that 7-8% rate and the government could start to quickly reduce them to make things more affordable,” Ryan said.

“Now, (first-time homebuyers) are faced with a situation where rates haven’t gone up 10% or 20%, they’ve gone up 150%, and they’ve gone up that in less than a year.”

Prediction interest rates would stay low

Ryan said he expected interest rates to stay low for a considerable time, and all signs seemed to point in that direction.

“A year ago, I could easily have locked up maybe 2.49% or 2.5% for two years.”

“Categorically, I’m the first to say I was 100% wrong, but then again, I know there are people out there who would say they’re very smart about swap rates and interest rates, and they were all wrong, too.”

He said that many had made the same bet as him, which would probably leave them struggling.

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