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Borrowers can now access a 10-year interest-only loan with no midterm reassessment, eligible for both investors and owner-occupiers, including retirees.
In what is believed to be a first from an Australian retail bank, AMP Bank today (5 May) launched a 10-year interest-only (IO) home loan with no midterm reassessment for both owner-occupiers and investors.
Unlike typical products that require reassessment after five years, the loan provides eligible investors and owner-occupiers (including self-employed borrowers, retirees, and those on the cusp of retirement, if they can meet the bank’s exit strategy policy) with the same loan and credit assessment for the full decade in a bid to give them “greater certainty and stability" and enable them to free up cash flow.
There is no specific age limit for the 10-year interest-only loan, as approval is based on the borrower’s ability to meet financial criteria and demonstrate a viable exit strategy—such as term deposits, shares, or investment properties—regardless of age.
Borrowers’ capacity to repay will be evaluated based on the remaining principal and interest term after the interest-only period.
The loan – available through Professional Packages via the broker and direct channels – has a maximum loan-to-value ratio (LVR) of 80 per cent.
However, if an owner-occupier requests a loan term over six years and the IO repayment portion of the borrowing exceeds 50 per cent of total owner-occupied borrowing, the maximum LVR will be 70 per cent. The bank said this was to “safeguard owner-occupiers during market fluctuations”. This does not apply to investors.
The rate for both investment loans and owner-occupier loans over $1 million on this new product is 6.29 per cent.
AMP Bank said the product has been developed to meet the needs of modern borrowers and Australia’s property market, particularly noting the rise in property prices has led to an increase in young people ‘rent-vesting’ and borrowers paying off mortgages for longer (AMP research showed that 90 per cent of borrowers over the age of 50 believe they will likely still be paying off a mortgage in retirement [67 years for state pension]).
It also reduces paperwork and ongoing reassessment burdens, which can be particularly attractive for those with non-traditional income sources.
Speaking of the product launch, Michael Christofides, AMP Bank’s director of lending & everyday banking, told The Adviser: “We are always looking closely at areas we can meet customer needs and be a first mover for our broker channel and that’s why AMP Bank’s new interest-only product is a gamechanger – giving brokers more flexibility with an Australian-first solution for those in or near retirement, and empowering customers with greater cash flow at a time when financial freedom and adaptability matters most."
He continued: "We hear from our customers regularly, and we hear a number of issues that they're having to deal with right now. The first one is really the cost of living, and that continues to create stress for customers. The second is customers who are nearing retirement and are concerned that they're going to run out of money through their retirement."
Christofides added: “In the past 20 years, the number of Australians aged 55 to 64 who own their homes outright has significantly decreased. Consequently, more people are carrying debt into retirement – a trend set to continue.
“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.
“For some retirees, the reality is that increasing equity in their property offers no felt benefit; instead, they could use additional cashflow to enhance their quality of life."
The director of lending and everyday banking added: "All of those things ultimately led us to start to think about how to solve those problems for our customers. And what we're delivering is is a way to help ease that burden, to unlock greater cash flow create more flexibility and certainty for customers who are having to deal with these everyday problems.
“Our new interest-only loan is a simple solution designed to provide this optionality and financial flexibility for retirees and pre-retirees.”
AMP Bank has been updating and innovating its offering recently, including by launching a new digital bank for small businesses (which launched Australia’s first numberless debit cards for small business) and is currently trialling a new loan origination platform through the broker channel.
[Related: AMP Bank book shrank in FY24 but broker flows growing]
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