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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 a 12-month period.
Will Ranken, Westpac general manager, home loans, said the changes are designed to provide additional repayment relief for mortgage customers amid the COVID-19 crisis.
“We have had more than 115,000 customers defer mortgage repayments as part of our COVID-19 consumer support package,” he said.
“However, we recognise that many customers who have been financially impacted by COVID-19 still want the option of making some repayments during this time.
“These changes mean it is now simpler for customers to apply to extend 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 may 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 be required 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”.