CommBank is changing its rules to make it easier for home loan borrowers to refinance their current deals.
The bank announced that it is lowering the serviceability buffer for refinancing from the standard 3 percentage points to 1 percentage point.
CommBank executive general manager of homebuying Michael Baumann said the changes would see refinancers who meet the bank’s strict eligibility to only be assessed at a lower buffer.
“The alternative interest rate buffer servicing assessment rate will support customers refinancing existing home loan debts, which do not pass the standard buffer over a 30-year period principal and interest loan, but who would otherwise be eligible to refinance to a CommBank home loan,” he said.
This means that a borrower refinancing to a home loan with an interest rate of 5.5% p.a. will be assessed at 6.5%, instead of 8.5%.
CommBank is not the first major bank to loosen the serviceability rules for refinancers — in May, Westpac announced a similar measure that will apply to all qualified refinancers within Westpac and subsidiaries, including St George, Bank of Melbourne, and BankSA.
To be eligible for the modified buffer, the borrower must meet a credit score of at least above 650 and must not have missed a debt repayment over the past year.
Interest-only loans, debt consolidation, and those with lender’s mortgage insurance are not qualified under the lowered assessment rate.
APRA reminds lenders to be prudent
With several providers now changing their assessment rules for refinancers, the Australian Prudential Regulation Authority (APRA) issued a reminder, calling lenders to ensure that any changes to the serviceability rules to accommodate refinancers must still follow the core intent of its guidance on credit risk management.
APRA’s current prudential framework in assessing a borrower’s repayment capacity requires banks to include a 3-percentage point buffer to be applied above the current housing loan interest rate.
“The serviceability buffer provides a contingency for rises in interest rates over the life of the loan, as well as for any unforeseen changes in a borrower’s income or expenses,” APRA said.
“With the potential for interest rates to rise further, inflation still high and the possibility of weaker labour market outcomes, the buffer is an important risk mitigant.”