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

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

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

By Harrison Astbury

on 08 May 2020

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

Photo by Gus Ruballo on Unsplash

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.

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.

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Harrison Astbury

Harrison is Savings.com.au's Assistant Editor, and also Editor & Research Analyst of sister comparison site InfoChoice.com.au. Prior to joining Savings Media Group in January 2020, he worked for some of Australia's largest comparison sites and media organisations, and has key interests in housing policy, real estate, and niche topics such as the gold standard.

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