The bank has become the second major lender to offer customers the option to switch to interest-only repayments, or extend their IO terms by 12 months, as a form of financial assistance during COVID-19.
Last week, the Commonwealth Bank of Australia (CBA) said it was considering an expansion of its loan relief program to enable borrowers to secure interest-only (IO) terms of up to 12 months – as Westpac has done.
The comments were made amid growing calls for this type of assistance after regulators issued new guidance that enabled lenders to change existing loan terms (such as conversions from principal and interest [P&I] to IO, or for the extension of an IO loan term for a maximum of 12 months) without having to undertake full serviceability assessments.
CBA has now confirmed that it is enabling customers to make the change should they so wish.
As of 29 May, CBA customers can switch from P&I to IO repayments or extend out their current term by 12 months if:
- They are not in arrears.
- They are not in financial hardship.
- There will be a minimum of one year remaining on the contracted loan term at the expiry of the proposed interest-only term.
Borrowers who had previously deferred their home loan repayments but have since cancelled their repayment holiday are also eligible for the IO switch/extension.
Borrowers urged to speak to bank or their broker
Speaking of the news, CBA group executive, retail banking services, Angus Sullivan said the change was made to further support customers through the economic fallout from the health crisis.
“We recognise that as the coronavirus situation evolves and customers start returning to work, they may require alternative temporary assistance measures to help them get back on their feet sooner,” Mr Sullivan said.
“As part of this, we are temporarily allowing existing home loan customers to apply for a one-year interest-only extension, or switch if they are currently making principal and interest repayments, without requiring a serviceability assessment.”
Mr Sullivan outlined that eligible customers would be able to apply for the IO switch or extension digitally via NetBank and “can also speak to their broker, [visit] us in branch or [call] our Australian-based call centres”.
CBA had already released a range of financial assistance measures for mortgagors affected by the COVID-19 pandemic and revealed last month that it had received repayment deferral requests on more than 144,000 home loans, 71,000 business loans and 25,000 personal loans as a result of the COVID-19 crisis.
The big four bank had also previously moved all borrowers on variable principal and interest repayments to minimum repayments on 1 May 2020, which it claims has “released up to $3.6 billion of additional cash flow into the economy”.
While Westpac and CBA have now released these IO lifelines, the other two major banks have not yet done so.
NAB has previously said that while IO switches are not available for P&I borrowers without a full serviceability assessment, it has been “fast-tracking” IO term extensions for eligible customers since April.
Unlike its peers, ANZ has not indicated that it has revised or intends to revise its existing IO policy.
[Related: Senator calls on banks to extend IO periods]