AMP Bank claims it's the first retail bank in Australia to offer such a long-term interest-only loan to new and existing owner occupiers.
See also: Interest Only vs Principal & Interest for Home Loans
Typical terms for interest-only loans run to five years and are often favoured by investors who can claim interest repayments on their investment properties on their tax returns, but not any principal paid back.
AMP Bank says its new 10-year offering comes with no mid-term assessment, providing customers with better long-term financial flexibility and greater control over their cashflow.
New loan aimed at older borrowers
The product is being targetted at retirees and pre-retirees who are still paying mortgages, in effect offering a way to reduce the housing component of their household expenses.
Interest-only repayments can be lower than principal and interest (P&I) repayments as borrowers are only paying interest on their loan and not reducing the amount originally borrowed - the principal.
However, the catch is interest-only home loan rates are often higher than those offered to borrowers making P&I repayments.
This is the case with AMP's new 10-year product.
Below is a comparison of the rates on AMP's Professional Package variable owner occupier home loan for a borrower with a loan-to-value ratio (LVR) of 80% or less for a loan amount of between $500,000-$1 million:
| Variable | Comparison rate* | Interest only (5 years) | Comparison rate* | Interest only (10 years) | Comparison rate* |
| 5.99% p.a. | 6.34% p.a. | 6.50% p.a. | 6.53% p.a. | 6.55% p.a. | 6.68% p.a. |
The rates increase for loan amounts below $500,000.
The 10-year interest-only option is also available on Professional Package fixed loans for both owner occupiers and investors fixing for one, two, three, or five years.
In these cases, interest-only periods can run longer than the fixed term periods, but not shorter.
However, potential customers will need to crunch the numbers beyond the interest rate.
Interest only loans ultimately increase the amount of interest payable, and condense the P&I payments into a shorter timeframe, making them larger.
See Also: Interest-Only Calculator
Sign of the times
AMP is marketing the product as providing additional cashflow to retirees for one-off large expenses in retirement as well an opportunity for enhanced quality of life.
Its website marketing features images of older people enjoying life, while espousing the benefits of cashflow flexibility.
AMP Bank's director of lending and everyday banking Michael Christofides said more people are carrying debt into retirement, a trend that's set to continue.
"In the past 20 years, the number of Australian aged 55 to 64 who own their own homes outright has significantly decreased," he said.
"While paying off a mortgage early is often advisable, maintaining flexibility and unlocking property equity can be beneficial, especially in the early years of retirement when many underspend out of fear of outliving their savings."
Mr Christophides said for some retirees, increasing the equity in their properties provides no day-to-day benefit while the additional cashflow of a long-term interest-only loan could enhance their quality of life.
Michael Christophides, Director of Lending & Everyday Banking, AMP Bank (Supplied)
AMP's own research has found nine in 10 Australians aged over 50 believe they'll still be paying off a mortgage into retirement.
The loan is also being touted as suitable for self-employed borrowers, investors, and rentvestors.
While down on pre-2018 levels, interest-only lending has experienced an uptick recently.
The latest APRA data indicates nearly $37 billion in IO loans were written in the December 2024 quarter, up from a recent low of $26 billion in the March 2024 quarter.
How is AMP's 10-year interest-only loan assessed?
AMP said it will assess borrowers' capacity to repay the loan based on the remaining principal and interest term after the interest-only period.
Borrowers will also generally need a maximum LVR of 80% although where interest-only portions of the loan exceed half of the total owner-occupier borrowing, the maximum LVR is 70%.
For borrowers approaching retirement, who are already retired, or aged 60 and over, they'll also need to meet the bank's exit strategy policy.
See also: What's the maximum age for a home loan?
Another home loan rate with a '4' in front
In other home loan news, Bank of Queensland has joined the foray into 'four' territory, cutting the rate on its residential home fixed home loans to 4.99% p.a. for both two-year (5.84% p.a. comparison rate*) and three-year (5.77% p.a. comparison rate*) periods.
It joins Police Bank which last week became the first Australian lender (according to the Savings.com.au database) to drop a fixed rate below the 5% mark in recent times.
The BoQ fixed rate of 4.99% is available to borrowers with 80% LVR and making P&I repayments.
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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Row Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.79% p.a. | 5.83% p.a. | $2,931 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | |||||||||||
5.74% p.a. | 5.65% p.a. | $2,915 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | |||||||||||
5.84% p.a. | 6.08% p.a. | $2,947 | Principal & Interest | Variable | $250 | $250 | 60% |
| Promoted | Disclosure |
Image by Mikhail Nilov via Pexels
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