Combination IO/P&I loan introduced

by Miklos Bolza02 Jun 2017
Teachers Mutual Bank (TMB) has announced changes to its interest-only lending policy for fixed and variable rates by introducing a new type of combination mortgage.

From last Tuesday (30 May), borrowers at TMB as well as the bank’s other brands UniBank and Firefighters Mutual Bank will be limited to paying IO on a maximum of 50% of their total mortgage with principal and interest repayments covering the rest.

While this means that borrowers will have to take out two loans to cover their mortgage, the process will not be complicated, Mark Middleton, TMB’s head of third party distribution, told Australian Broker.

“It’s still the one loan. All the broker is doing is selecting two different products. It still comes through the NextGen.Net system or through their CRM platform on to us. In essence, it involves very minor additional work that the broker has to do for that loan to come to us. We’ll still assess the two loans as one requirement from that customer.”

Potential borrowers who have been conditionally approved for a home loan but have yet to settle will not be affected by the change. However, if an application exceeds the 90-day approval and then requires re-assessment, the new conditions will apply.

These changes have been in response to regulatory moves by ASIC and APRA giving guidance to ADIs, Middleton said, as well as to meet the needs of members out there in the market.

“To do that, we thought we’d take a different approach to the market and be able to offer interest-only out there. With that in mind though, we’ve gone 50/50.”

This benefits borrowers, he added, since this combination loan gives them equity in the property as well instead of simply paying off the interest.

“They’re still in the market and it’s a great way of staying in there but it also helps them think about ways to look at it differently and get themselves a greater stake in the property.”

TMB has also increased rates for its IO home loans by 40 basis points across one to five year terms for owner occupiers and investors. This means rates for owner occupiers lie between 4.34% and 5.01% per annum while those for investors sit between 4.64% and 5.31% per annum.

Related stories:

Wholesale funder launches special P&I rates

Major bank alters IO lending policy

Major bank cuts LVR on IO loans