Turning a Big Dover Heights Interest‑Only Loan Into a Safer Setup

Refinancing a large interest‑only (IO) loan on a Dover Heights home is safest when you first model what principal‑and‑interest (P&I) repayments would look like at today’s rates plus 3%, check those sit under roughly 30–35% of your net income, and only then choose whether to extend IO, switch fully to P&I, or run a split. The aim isn’t just a lower rate; it’s removing nasty repayment shocks and refinancing risk.

Running the numbers is the first step to safely refinancing a large interest-only loan.

Step 1: Get clear on your real position this week

Before you touch the structure, you need a clean snapshot.

1. Confirm the basics
   • Loan balance and interest rate (e.g. $3.5m at 6.3% IO).
   • Remaining IO term (e.g. 18 months before auto‑switch to P&I).
   • Remaining total loan term (e.g. 25 years).

2. Run the IO expiry shock
   On $3.5m at 6.3%:

   • IO repayment ≈ $18,375 per month.
   • If it flips to 25‑year P&I at 6.3%, repayment jumps to ≈ $23,200 per month.
   That’s a ~$4,800 monthly shock.

3. Stress‑test at +3%
   At 9.3% (RBA and APRA style stress), that same loan is closer to $30k+ per month.

Lenders are already testing like this, and Roy Morgan data shows more than a quarter of Australian borrowers ‘At Risk’ of stress. Your job is to know whether you’d cope long before the bank forces a change.

For a deeper look at how jumbo loans are assessed, see How I’d Structure a Dover Heights Prestige Mortgage: IO vs P&I.

Step 2: Decide what you’re optimising for

In Dover Heights, most big IO loans sit on one of three stories:

• High income, lumpy cashflow (self‑employed, bonuses, business owners).
• Pre‑retirees using IO to ease towards downsizing.
• Investors maximising deductible interest while equity sits in the cliff‑edge family home.

Clarify:

• Are you trying to cut total interest, smooth cashflow, or buy time while something changes (sale, bonus, vesting, business event)?
• What’s your 5–10 year plan for this property – forever home, likely sale, or potential move and convert to investment?

Your answer drives whether we:

• Extend IO.
• Switch fully to P&I.
• Run a mixed structure: part IO, part P&I.