Interest-only home loans receive big cuts as COVID-19 shocks investors

author-avatar By on May 08,2020
Interest-only home loans receive big cuts as COVID-19 shocks investors

Photo by Gus Ruballo on Unsplash

AMP, Greater Bank and Neobank 86 400 have all made sizeable cuts to interest-only investment home loans by up to 65 basis points.

This week, some pretty big cuts happened to interest-only investment loans, with AMP and 86 400 slashing by up to 65 basis points, and Greater Bank by up to 50 basis points.

For example, AMP's packaged investment home loan, paying interest only for two years now has a rate of 2.99% p.a., with a comparison rate of 4.58% p.a. comparison rate.

An AMP spokesperson told Savings.com.au that the new rates are available for new and existing customers.

"We’re facing unprecedented times and we recognise the important role we have to play in supporting home owners, investors and savers through these challenging circumstances," they said.

"AMP Bank launched a range of competitive fixed rates as part of a comprehensive support package for clients."

Switching to interest-only could be a viable alternative to totally deferring a mortgage for six months as COVID-19 hits the wallet.

Australian Bureau of Statistics data released Wednesday revealed a drop in investor home loan commitments by 2.5% in March in seasonally-adjusted terms.

However, the average size of investment home loan refinances grew - in original terms - from $482,451 in February to $485,275 in March.

In the past week alone, more than 100,000 loans have been deferred, and in recent weeks it's become unlawful in many states to evict tenants even if they can't pay rent.

With home loan deferrals, interest is still capitalised in that six month mortgage holiday, meaning you could end up paying thousands more in interest over the life of the loan.

Fixed investment loans are now comparable to their variable counterparts in many cases, with the below table showing variable investment home loans paying principal and interest.

Provider
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 
2.94% 2.96% $1,634 More details
3.08% 3.14% $1,704 More details

Base criteria of: a $400,000 loan amount, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the product provider’s web site. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 01 June 2020. View disclaimer.

86 400 home loan rate changes

  • Investment Own Home Loan Fixed IO 1 Year: 45 basis point cut to 2.89% p.a. (3.43% p.a. comparison rate*)
  • Investment Own Home Loan Fixed IO 2 Years: 65 basis point cut to 2.69% p.a. (3.36% p.a. comparison rate*)
  • Investment Own Home Loan Fixed IO 3 Years: 65 basis point cut to 2.69% p.a. (3.32% p.a. comparison rate*)

A number of 86 400's fixed investment loans paying principal and interest (P&I) were also cut.

AMP home loan rate changes

  • Professional Package Investment Fixed IO 2 Years: 65 basis point cut to 2.99% p.a. (4.58% p.a. comparison rate*)
  • Professional Package Investment Fixed IO 5 Years: 49 basis point cut to 3.39% p.a. (4.34% p.a. comparison rate*)

AMP also made cuts to its residential loans of the same ilk. The Professional Package is a packaged loan product and includes redraw, and the ability to access other credit products.

Greater Bank home loan rate changes

  • Great Rate Investment Fixed IO 1 Year: 50 basis point cut to 2.79% p.a. (4.03% p.a. comparison rate*)
  • Ultimate Investment IO Fixed 1 Year: 50 basis point cut to 2.79% p.a. (4.24% p.a. comparison rate*)

As seen above, the biggest cuts were to one-year fixed products.

Two and three-year fixed terms across Greater Bank's two key home loan product lines (Great Rate, and Ultimate) were cut by up to 15 basis points.

The main difference between Great Rate and Ultimate is that Ultimate home loans can be packaged with credit cards and insurance products.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Harrison joined Savings in 2020. He is a journalist with more than four years of experience, with previous stints at News Corp and financial comparison site Canstar. With a keen interest in personal finance, Harrison is passionate about helping consumers make more informed financial decisions.

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