Major bank introduces new IO ‘simulator’

by Miklos Bolza25 Sep 2017
The Commonwealth Bank of Australia (CBA) has announced a compulsory new digital tool, the Interest Only Simulator, which will be incorporated into its third party lending process.

The simulator will be accessible through CommBroker and will show customers the differences between IO and P&I repayments as well as the financial impacts over the life of the loan for both types of loans. It will be mandatory from 6 October for all customers applying for a new interest only loan.

“The new tool will make it easier for our brokers to have conversations with customers about their needs and their loan options. It will also help ensure customers understand what type of loan is best for them and their situation,” a CBA spokesperson told Australian Broker.

A compulsory Customer Acknowledgement Form will also be included in the simulator. This will be submitted with all interest only home loan applications to ensure that those payments meet the client’s needs.

Brokers are required to provide customers with a copy of this form as a record of the discussion. This can be done electronically as a pdf attachment via email.

“We encourage our customers to choose principal and interest repayments to help them build equity in their home, where this meets their needs and objectives. Customers who currently make interest only payments are encouraged, where they are able, to switch to principal and interest repayments,” the spokesperson said.

COMMENTS

  • by OzBoy 25/09/2017 11:12:44 AM

    “The new tool will make it easier for our brokers to have conversations with customers about their needs and their loan options. It will also help ensure customers understand what type of loan is best for them and their situation,” a CBA spokesperson told Australian Broker.

    Oh great because as brokers we don't know what we are doing. OMG how did I ever survive without your input to my business practises..or should that be how have you survived with your business practises.

  • by Oscar 25/09/2017 11:35:55 AM

    They are only doing this because APRA is keeping an eye on all banks. Please don't say it's a part of "responsible lending" process... the banks could not care less BEFORE APRA placed focus on lending. That's why I used to get uninvited credit card invitations for huge amounts (e.g. $20k) without any form of justification. Before "responsible lending", banks were "irresponsible" hence why there is so much heat on them now.

  • by Greg 25/09/2017 11:42:21 AM

    Not much of a calculator when you look at it. It makes interest only look worse than it really is without any allowance for a rate reduction when the loan does revert back to principal and interest payments after the initial interest only period. But that's OK - as professional finance brokers I'm sure we can correctly explain and display the true differences to our clients.