THE Commonwealth Bank is leading the way by refunding interest charges on deferred home loans and credit cards, during the six months repayment freeze.
The CBA will make payments to customers who have been granted a six-month deferral to offset interest on interest costs during the six month period.
CBA group executive retail banking services Angus Sullivan said when a home loan repayment is deferred for six months, interest is calculated and added to the loan balance each month which can result in customers paying interest on interest each month.
“To support more Australians, we will make a one-time payment to all customers who are receiving a home loan deferral because of the coronavirus.
“This means for an average loan of $350,000, CBA will be refunding approximately $45 to offset the effect of interest on interest over the six month period. Customer payments will vary based on their loan amount and interest rate.” Sullivan said.
RateCity research director Sally Tindall said the banks should be congratulated for helping people who can’t meet their mortgage repayments, but that it was important for customers to understand the long-term implications of a repayment pause and think about how they can minimise the fallout.
“Clearing the debt on the other side of a repayment pause will be an uphill battle for many families and comes at a cost.
“RateCity.com.au research shows that a mortgage holder could end up paying over $17,000 extra over the remainder of their loan as the result of a six-month pause if they don’t make extra repayments on the other side. This assumes the person is five years into a 30-year loan with a balance of $400,000,” Tindall said.
The cost of a six month pause on a $400,000 loan balance with 25 years remaining:
|LOAN TERM REMAINS SAME||LOAN TERM EXTENDED|
|Extra paid over life of loan||$6051.69||$17,377.61|
|Increase in monthly repayment after pause||$61.63||$0|
|Increase in loan term||0||15 months|
Notes: Based on an owner occupier paying principal and interest on the average rate of 3.54%. Excludes interest-on-interest charges during the pause, however some banks will charge this. People who are further into their loan will pay less.