CommBank loan repayment rate changes could cost customers $50,000+

Here's a piece of fine print that every CommBank mortgage customer needs to read.

In recent weeks the country's biggest home lender has announced that they will change some loan repayments and redraw balances in a way that reduces weekly and fortnightly repayments - but effectively extends the life-span of their customers who have have a variable rate principal and interest home loan, investment loan or personal loan with CBA.

Click here to compare current Home Loan rates at RateCity.com.au

Whether you have a loan with CBA or not, the bank’s latest changes to their customers home loan repayments are a lesson in looking deeper into any changes your bank makes to products you hold with them. It's also worth being aware if you're looking to buying a second property or have children who have just entered the property market. 

RateCity spokesperson Sally Tindall told The FiftyUp Club that CBA are making these changes automatically to customers who are paying the minimum required repayments. 

“Anyone paying more than the minimum by direct debit will not have their repayments changed however for the rest, the bank will automatically adjust your direct debit,” Tindall said. 
  While this will mean that in the short term, customers will be paying less each week or fortnight, the long term implications are slightly less rosy. 

“While this might put a few spare dollars back into your pocket each week, the long-term implications are potentially huge because you’ll actually take longer to pay off your home loan,” Tindall explained. 
 
“For example, the average home-owner paying fortnightly will see their monthly repayments drop from $899 to $830 a fortnight, however over 30 years the will end up paying $51,258 extra on their loan*.”
 

What you can do about it

If customers choose to change the way they pay now, they can avoid this. 
 
“To avoid these changes, the bank has said you need to adjust your direct debit amount to $1 or more over your minimum repayment,”
 
CommBank have set out the changes on their site for any customers who might be confused or uncertain about how the changes will affect their loan, or how their Redraw balances may be affected. 
 
And a spokesperson told the Herald Sun that the charges will provide more “flexibility” to customers.
 
“We encourage customers to speak with us so we can help them with their loans,’’ he told the publication. 
 
Tindall said that there are also policy changes that will affect those who make minimum repayments on a variable rate home loan with CBA and make minimum repayments by direct debit. 
 
“If you are on a variable rate, and there is a rate cut, they will automatically reduce your repayment amount,” Tindall explained, adding that; “If you make an additional lump sum payment on your home loan, they will automatically reduce your minimum repayments so your loan term isn’t reduced.” 
 
However, if you are paying more than the minimum repayments by direct debit each month, the bank will keep your repayments the same.
 
If you are a CBA customer with one of the above products don’t assume that your repayments will automatically change. Tindall said these changes primarily affect CBA home loan customers who either make a lump sum repayment or are paying on a weekly or fortnightly basis.
 
“It’s worth remembering it will only affect people paying the minimum repayment by direct debit so anyone making higher repayments should be ok,” Tindall said. 
 
If you’re still unclear about where you stand with your repayments, (the fine print is can be confusing) it’s worth calling CBA and finding out if and how it affects you. 
 
Tindall recommended asking them the financial implications of the life of your loan. 

“You might find they are quick to present the weekly and fortnightly cost savings but more reluctant to tell you the bigger picture,” Tindall said. 

But if you do find out that you are affected, there are actions you can take. 

“CBA says you will be exempt from these changes if you opt to make higher repayments. Of course, it’s always a good idea to do a health check on your mortgage every few years.” Tindall told The FiftyUp Club. 

“There are plenty of lenders offering rates under 4 per cent, particularly for owner occupiers paying principal and interest so you might find want to get ahead on your home loan faster by switching to a more competitive lender.” 
 
 
*(The above calculation is based on an average loan of $350K on CBA’s discounted variable rate.)
 
Any advice provided in this article is general in nature in that it does not take into account an individual’s particular circumstances or needs. Individuals should consider their own objectives, financial situation or needs, and if in doubt seek appropriate advice, before proceeding.