Investment Property Mortgage Payment Problems

Long story short, I purchased an investment property for a lot of money during the mining boom and have been paying only the Interest portion of the mortgage since then. Today I received a call from my bank to inform me that I need to start paying for the principal and the interest. The problem is that at the moment my income does not allow me to pay that much and if I sell the property now I am bound to lose a lot money and still owe the bank.
I am not sure what do do, has anyone one got any advice for me? Cheers

Comments

  • +10

    Move in and stop paying rent where ever you're living now

    • Second that and get some flatmates

    • +2

      is this in Pilbara or the mining regions?

      • +1

        Very high chance it is. That region has seen property and land values absolutely plummet.

  • +1

    How much you lost
    Where is it
    Is it rented

  • +2

    Greed is not good Gordon.

  • +10

    If you still will owe the bank after selling sounds like you're already in negative equity. Not a great investment TBH. Bank is calling in the loan because they also realise that your equity is upside down. The question you need to ask yourself is how much are you willing to lose by selling now vs how much you might lose selling later when all of the other genius property investors get the same call from their bank.

  • +15

    The mining boom was 10 years ago.

    In that time the OP has opted to pay $0 in principal.

    To me that is pure lunacy.

    OP Banked on continued capital growth which is no longer possible.

    OP…. doesn't the rent over the repayment?

    • Thanks for the reply, lesson learnt. The rent is about 1/2 of the repayment.

  • if I sell the property now I am bound to lose a lot money and still owe the bank.

    If you don't have to sell the property, then are you hoping that interest rates stay low and you'll have time to increase your income and/or the market recovers and you don't have to crystalise your loss?

    1. Speak to the bank - it's your problem is as much as theirs.

    2. What if interest rates rise to 5%, 7%? Can you manage? If not, then even though interest rates are likely to remain low until Covid resolves, if you can't service the interest at "normal" levels of interest rates, then there's not much point trying to hold the property for any longer - you need to take opportunity cost into account.

    3. What's the outlook for property prices in your area? If recovery depends on another commodities supercycle boom, then there's not much point trying to hold the property for any longer, bearing in mind that the building will depreciate over time.

    4. Do you expect to owe a lot to the bank? It might make sense to declare bankruptcy and start afresh, but you need to understand the implications of this.

  • +12

    Member since: 46min ago…

    • This guy gets it.

    • +1

      Should have started ozbarganing a long time before that phone call.

    • +5

      probably a ghost account (like many others asking for advice posts, because they are in some "cliff hanger" situation) when s/he doesn't want to be identified…

      • +2

        Yep but it's OzB - always some unoriginal clown who points out how new the user account is

        • +1

          I'm thinking the property might be in a Ghost Town.

          Cue the tumbleweeds…

  • +1

    It might be hard but you can try and refinance to another bank on interest only terms.

    • From what Op said above - the valuation wont stack

  • +1

    Rent it out

  • +1

    Should have joined ozbargain before today

  • +14

    long story short your screwed

  • I purchased an investment property for a lot of money during the mining boom and have been paying only the Interest portion of the mortgage since then.

    Since 1850s?

  • I'd spin the dice, collect $200 as you pass Go, and keep going…

  • +1

    https://www.ato.gov.au/individuals/working/in-detail/payg-wi... - it is possible to have any PAYG tax collected adjusted for any investment losses you may be incurring (Assuming PAYG is applicable to you). Essentially, if you expect to be negatively geared, instead of getting a big refund at the end of the tax year, you can get this ongoing. Might be a solution to help manage the issue with your current income situation. But yeah, interest only for long periods of time is a very risky play!

    • Thanks for idea appreciate it and will look into it.

  • OP, what else can you tell us? Apart from you were hoping for capital gain that didn't happen, and if you sell now, it'll be at a lost and you are repaying interest only.

    Assuming you are getting rental income and there is a shortfall that isn't going to cover mortgage repayment?

    Had you always been negative gearing and running at a lost? and you were just able to cover the interest payments & property expenses?

    Plus anything else you want to disclose.

  • +2

    Tell the bank you want to apply to extend the interest only period. If you have only had 5 years IO then you might be able to extend for another 5 if your income and situation is pretty much unchanged.
    If you have negative equity you probably won’t be able to secure an IO loan from another bank.
    Buying property in mining towns was and is a higher risk investment than normal.
    It only really paid off for people who got in early.
    It might be time to consider cutting your losses and get out.

    • This! This is the solution!

      Same bank, request a new 5yr IO period.

  • +2

    investment

    People should only speculate in investments with money they can afford to lose. They should also not get emotionally attached to it and hold on to it all the way down to zero.

    • You’re assuming only the money he puts in is all he is up for, he is up for the whole bank loan.

      • OP made a bad investment with other people's money. The lender is doing the right thing by collecting what they're owed.

        • "Other People's Money" is a great movie, especially for those still manufacturing Buggy Whips.

          Also, liked Mr Burns in The Simpson's for buying into Transatlantic Zeppelin, Amalgamated Spats, U.S. Hay, Confederated Slave Holdings and that “up-and-coming” Baltimore Opera Hat Company.

  • +1

    You made a terrible investment decision. Booms never last, to buy at the height of one in a town with nothing in it is silly. You will need to try to sell it now, paying principal and interest is throwing good money after bad.

  • +3

    Simple answer really - if you don't sell it then the bank will

  • +2

    You really have to give out more info (ie: income change, rental, interest rate, location, etc) before anyone can give you advice. In a general sense, I would say best to exit now and take losses before the economy collapse further.

  • +4

    Wait a second, LLs on others threads have been ranting about how property investment is a sure thing for the future….property always goes up….

  • Welcome to being upside down, there is lot more people that will be joining this party

    https://en.wikipedia.org/wiki/Negative_equity

  • -1

    Declare bankruptcy and wipe the debt, it will have consequences on many things over the next 7 years, but you can start again.
    Don't feel bad for the bank, they have insurance that you would of paid for on their behalf for this kind of thing.

    • Look at your expenses and cut non fixed costs
    • Look at your loan and see if you can refinance to a cheap P&I (2.x%) and put it on 30 year terms

    Lesson here, is if you can't afford to pay P&I you probably shouldn't have bought a property.

  • +1

    Look for a second job to increase your income.

  • “I declare bankruptcy”

  • see a financial counsellor - free and work out what the best solution will be, with this bank or another. work out if it is better for you to crystallize your losses now. get advice on bankruptcy from a lawyer/counsellor as you need to work out the best solution and not prolong your debts if there is no other option.

  • Boom and bust are cyclic.
    Looks like you bought at the boom and are looking to sell in the bust… Should have bought the other way round, see a financial counselor for advise like you should have done before or speak with someone who has been in the Pilbra for 20+ years as they have seen the cycle a few times and know the signs of recovery or disaster.

    • Looks like you bought at the boom and are looking to sell in the bust

      That is how most people invest. They see green and FOMO in just before the ATH. They then cry all the way down.

  • buy home insurance. hire some teenage bogans to burn the bushes around it. problem solved.