CBA Investment IO rate

Hi All,

My investment IO fixed loan recently matured and jumped from 3.99% fixed to 4.47% variable. Our bank adviced that it is a competitive IO variable rate given the current lending condition.

I wonder what is the going IO variable or fixed rate currently on offer in the market? and if there is any value switching to different lenders.

 

Broad question....but can you servicen now?

If not they have a 2 year rate at 3.89%...P&I

 

IO variable is an expensive product - its used to cross subsidise other products. I.e. it has the highest ROE for lenders. IO fixed is far cheaper - ranges from around 3.69-4.09% fixed for larger banks. IO variable rate of 4.47% isn't too bad for a larger bank - smaller banks in the early 4% range.

 

That's actually amazing for CBA - it's a huge discount off the standard variable rate. If it's P&I, it's a bit high.

You can currently fix with CBA for around 4.14 for 2 or 3 years - carded rate is 4.19 but can often get more with a negotiated discount. The rate might be even lower atm - you never know your luck, we've had some pretty amazing discounts on OO P&I fixed recently.

 

If it means anything, probably worth holding off fixing if you want a lower longer term fixed. Banks are raising funds now at lowest cost of capital in years - fixed rate funding market is coming down (likely that variable is too soon enough). Large competitors are nearly 50bps lower - this is a bit unusual for fixed rate market, perhaps reflecting timing of fund raises which is tied to the rate they usually charge.

 

Check your remaining interest only terms too. Most likely if you fixed a few years ago your interest only term may be expiring soon. If you have a long interest only term if may be worthwhile staying with the bank if you have no intention changing the repayments to P+I.

CBA have been amortising repayments for servicing for a long time so you may not have much long left. Most lenders cap IO periods to 5 years now too. You need to ensure you have sufficient time left on your interest only to fix again.

Borrowing power has reduced by quite a margin over the past few years so even if you can refinance you may only be able to refinance a lower amount or a lessor IO period.

 

Not sure if we could service P&I at this rate. We have a large amount on our HL, so it never crosses our mind.

Good point, I should crunch some numbers and see if we are better off especially at this low rate.

 

My initial intention was to fix under 4% IO investment. but our broker suggests that it is not possible as CBA are not going to offer this rate for their existing customers. Maybe possible for new business. This would mean going through the whole process of refinance (with other lenders) and i'm not sure if my application will would be approved given the tight lending policy in play.

 

Ask your broker to send a pricing request to see if CBA will match other banks if you can get lower rate - suggest only trying to compare with majors. Takes 2 mins.

 

With spectulation of RBA reducing variable rate next month after the election. Do you see downward movement on fixed rate offer post June?

 

I believe so - talk in funding markets is the big players are raising funds at lowest rates seen. This will eventually flow through to borrowers. Looking at it from the prism of the bank: there hasn't been an equivalent rate move on this product yet from some lenders to reflect lower funding costs. One issue to manage for them is it does promote a lot of swapping from borrowers from their highest return loans (IO INV Variable) to a lower return product (IO fixed), but competition will drive them down soon enough. Suncrorp at 3.69% IO is likely where the competition will end up soon enough (IMO). Westpac at 3.99% for new lending with big rebates is a relatively close call for smaller loans too (upfront cash to cover for slightly higher rate).

 

Suncorp rate is very competitive. Are they still a very conservative lender for investors? Last time I heard from them they required servicing to pass with a buffer over and above their calculator decided by the assessor.

 

Incredibly conservative. I've discussed this offer with quite a few people recently. Haven't actually lodged many applications because despite the rate, they're not a suitable lender for these clients longer term needs. This is mostly due to a combination of serviceability and equity release policies.

 

The advertising offer on westpac website is 4.15% fixed IO for 2 year and 4.29% fixed IO for 3 year and that's under their Premier advantage package. How/Where did you get 3.99%?

 

3.99% is the Westpac P&I 3 year fixed investment rate under the package.

 

Negotiated pricing - it's not advertised

Despite Suncorps low rates, their 3 months of living expenses requirement makes using them too hit and miss for me- it's anyone's guess what they'll find and fuss over.

 

Its an IO INV 3 year fixed 'special' (more of a sign of what's to come soon from larger banks). For new customers only at this stage. Suncorp have the same product at 3.69%. Verification of documents is a bit more thorough there as Jess mentioned.

 

Westpac do offer 3.99% IO 3 year fixed investment. It's not a published rate, your broker or banker needs to get pricing asking for it at the time of application. The pricing is automatically approved.

It's a good offer, but kind of highlights everything that's wrong with some banks. They won't simply give you a good deal, you have to know about if first and ask for it.

 

That's an incredible IO var investment rate with CBA - that's a 1.92 discount off the SVR

As mentioned above - Suncorp have a super sharp 3 year fixed rate if you're just looking for the lowest of the low.

Cheers

Jamie

 

My

Broker came back with CBA offer of 4.09% IO fixed for 2 years. What are your thoughts given that i wouldnt need to go through servicability assessment with another lender.