Westpac has announced that eligible interest-only (IO) home loan customers can now apply for term extensions of up to 12 months. Borrowers paying principal and interest (P&I) will also be permitted to switch to IO for 12 months.
Westpac's home loans general manager - Will Ranken, stated that the changes are to provide additional repayment relief for mortgage customers amidst the coronavirus environment. According to Ranken, more than 115,000 customers have deferred and continue to postpone mortgage repayments due to their COVID-19 consumer support package and some customers still want the option to continue making repayments at this time.
For the above reason, it has become much simpler for customers to apply for an extension in their interest-only loan term or, switch their repayments to interest-only. This comes amid calls for IO loan relief from policymakers after the Australian Prudential Regulation Authority (APRA) issued new guidance around serviceability assessments for borrowers amid the COVID-19 crisis. The regulator acknowledged that there might be "operational challenges" for ADIs in "evaluating the long-term impact of economic stress on borrowers due to COVID-19".
APRA stressed that such challenges "should not prevent changes to loan conditions where these are otherwise assessed to be prudent".
Accordingly, APRA revealed that while full serviceability assessments would continue to require for new lending, it would temporarily ease guidance for changes to existing loan terms, including the conversion of a P&I loan to IO.
"Over the next six months period, APRA, therefore, accepts that some ADIs may not be able to complete a full serviceability assessment for borrowers seeking a change in their loan conditions," the regulator noted.
"Such changes may include converting from principal and interest to interest-only, or for the extension of a loan term."
However, APRA noted that for conversions from P&I to IO "without a normal serviceability assessment", it expects that IO terms "would not exceed 12 months".
Source: Mortgage Business