AMP Bank says home borrowers are ditching interest-only loans as they look to reduce mortgage debt in the tapering rate environment.
The mid-tier lender revealed on Monday that it had detected a 14 per cent increase in the number of borrowers switching to principal and interest mortgage products since the Reserve Bank’s rate cut in early June.
“Analysis of customer data has revealed more existing interest-only customers are choosing to pay down their debt as interest rates have decreased, switching from interest-only loans ahead of their five-year expiry date,” said AMP Bank chief executive, Sally Bruce.
“The recent rate cuts have put more money in the pockets of homeowners, and we are seeing a significant uptick in the number of those customers opting to pay down their debt with the extra funds they have.”
AMP Bank did not reveal the absolute numbers of borrowers making the switch to P&I loans.
The bank compared customer movements between mortgage products six weeks before the June 4 official rate cut with switching activity in the second week of July.
Official data published by APRA last week shows that interest-only mortgages are rapidly losing favour with home borrowers.
In the three months to the end of June 2018, ADI home lenders approved 15,704 loans on interest-only terms.
However, in the corresponding period this year, ADI mortgage lenders approved 12,620 interest-only loans.
Average rates on interest-only mortgages were tracking at a 50 basis point premium to P&I rates in the June quarter, according to the RBA.