Commbank starts reducing customers' home loan repayments to the minimum

author-avatar By on May 01, 2020
Commbank starts reducing customers' home loan repayments to the minimum

Photo source: CBA

Commonwealth Bank has started to automatically reduce home loan repayments for eligible customers to the minimum amount.

The move was announced on March 19 as part of a number of measures introduced in response to the coronavirus, and CommBank (CBA) said it expected the move to affect almost 750,000 of its 1.7 million home loan borrowers. 

Customers were notified via an email last week the one-off change would be rolled out from 1-5 May.

Customers who wished to opt-out from the change could do so by changing their direct debit via the CBA app or contacting the bank directly after 6 May. 

For customers already paying the minimum, nothing will change.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers. 

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 27, 2021. View disclaimer.

CBA said in a statement the change was designed to give customers experiencing financial hardship a cash injection. 

"Over the past couple of months, and in particular since the coronavirus pandemic was declared, we have been contacted by hundreds of thousands of our customers seeking help and financial relief, particularly from those people who have been stood down by their employers or have lost their jobs," the bank said.

"This has had a significant and substantial effect on their income.

"As a consequence, we have announced several measures to support our customers including moving nearly three-quarters of a million of home loan borrowers to the monthly minimum repayment amount."

CBA said the change would release an average of $400 a month for customers but recognised the move wouldn't please everyone. 

"We do understand that this decision does not suit all of our customers and appreciate that we may have caused some of them an inconvenience."

The big four bank said it had received around 2,600 complaints as a result of the move, representing 0.35% of their affected customers. 

The move has been labelled controversial by many, as the consequences of not opting out could see the loan take longer to repay. 

Should you reduce your home loan repayments to the minimum? 

Nothing comes for free and despite the CBA figure of customers getting an extra $400 a month for reducing their payments, it's likely the move will cost more down the track. 

For customers experiencing financial hardship, lowering your repayments to the minimum might be a necessity, especially for those struggling to meet the repayments on their home. 

But for those not in this boat, keeping your repayment as is will usually be financially beneficial. 

So how does this work?

You can pay more than the minimum loan repayment and actually pay off your home loan faster, since a greater share of your repayments will be paying off the loan’s principal and less in interest.

You can pay off bigger chunks of your home loan by keeping repayments the same, as this could be much more financially beneficial than saving money to spend on items in the short term, as home loans are one of, if not the single biggest expense you’ll ever have.

In the table below you can see the tens of thousands you could save by resisting the temptation to lower your repayments after a rate cut from 4.00% p.a. to 3.50% p.a.

Interest rate

Monthly repayments

Total repayment

Total savings (from 4.00% p.a.)

Loan length

4.00% p.a.

$1,910

$687,478

N/A

30 years

3.50% p.a. (after two years of paying 4.00% p.a)

$1802

$651,312

$36,166

30 years

3.50% p.a. (after two years of paying 4.00% p.a)

$1,910 (minimum repayment of $1802 + extra payment of $108

$628,808

$58,670

27.5 years

Note: This scenario assumes there’s no more rate changes after the rate falls to 3.50 p.a%

Assuming you kept your repayments in this mock scenario at $1,910 despite the lower interest rate of 3.50% p.a (which kicked in two years into the loan), the rate cut could save you $58,670 over the life of the loan - over $22,500 more than if you’d lowered your repayments to the new minimum of $1,802.

It could also see you pay off your loan two and a half years earlier. 


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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