CBA nudges borrowers away from interest-only loans

Commonwealth Bank has responded to the regulator’s concerns about interest-only loans by making them harder for borrowers to access.

In a message to mortgage brokers, Australia’s biggest bank announced that it would implement the following changes from Monday 22 May:

• CBA is reducing the discounts offered for new owner-occupied or investment home loans with interest-only payments.
• Borrowers who submit a pricing request for a new mortgage with principal-and-interest payments, and then switch the repayment type to interest-only before loan funding, will no longer get a discount.
• The $1,250 refinance rebate for select owner-occupied home loan applications will only be available for principal-and-interest mortgages. It will no longer be available for interest-only mortgages.

Commonwealth Bank also announced further changes, although these will apply from Saturday 10 June:

• CBA is reducing the maximum loan-to-valuation ratio (LVR) from 95 per cent to 80 per cent for new owner-occupied mortgages with interest-only payments.
• The bank is also reducing the maximum LVR from 90 per cent to 80 per cent for new investment mortgages with interest-only payments.
• However, the current rules will apply for applications submitted for assessment by close of business on 9 June.
• CBA will no longer accept interest-only payments for building or construction loans. These loans must have principal-and-interest repayments after construction is complete and the loan has fully funded.
• Again, the current rules will apply for applications submitted by close of business on 9 June.

CBA responds to regulator’s concerns

Commonwealth Bank said it had made these changes after APRA, the banking regulator, announced on 31 March that it wanted lenders to ease back on their interest-only lending.

APRA said at the time it wanted to “reinforce sound residential mortgage lending practices in an environment of heightened risks”.

CBA, in its message to brokers, said it was committed to “maintaining our prudent lending standards and meeting our regulatory requirements”.

“To help meet these commitments, we are introducing changes that encourage customers to choose principal-and-interest repayments, where this meets their needs,” the bank said.

“We are also increasing our already robust monitoring and reporting activities to ensure that where interest-only payments are selected, they are suitable for customers’ needs.”

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