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CBA to Offset Interest Charged on Interest for 6 Month Mortgage Repayment Deferral

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CBA to Offset Interest Charged on Interest for 6 Month Mortgage Repayment Deferral
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Associateddust on 03/04/2020 - 20:58 cba.com.au (441 clicks)
Last edited 03/04/2020 - 21:20

The Commonwealth Bank (CBA.AX) will make the payments to customers who have taken up a six month repayment deferral, in a bid to offset the overall interest charged on the loan.

“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,” group executive retail banking services Angus Sullivan said.

“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.”

For an average loan of $350,000, the bank will refund around $45 to offset the interest accrued over the six month period.

Taken from here

Financial Home Loan Loan

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  • CyberMurning on 03/04/2020 - 21:03
    +5

    same email from anz.
    i think all banks will do the same. imagine if one not, people/media/government/flora/fauna will curse them like hell.

    • Associateddust @ Commonwealth Bank on 03/04/2020 - 21:12
      -3

      Australians love bank bashing.

      imagine if one not, people/media/government/flora/fauna will curse them like hell.

      This will happen regardless of what they do!

    • ruprectaus on 04/04/2020 - 09:32

      imagine if one not, people/media/government/flora/fauna will curse them like hell.

      They do that now, sensibly the banks ignore them.

  • ssdexecutor82 on 03/04/2020 - 21:09
    +3

    $45 Seems like bugger all?

    • Associateddust @ Commonwealth Bank on 03/04/2020 - 21:11
      +6

      Interest rates are at record lows!

  • aaruu on 03/04/2020 - 21:16

    It's all big 4 banks mate!!

    • [Deactivated] on 03/04/2020 - 21:42

      Which bank?

  • petec_7 on 03/04/2020 - 21:18
    +19

    I think your title needs to change. From your description, they're only offsetting the interest charged on interest thus resulting in a realtively small figure of $45 on a $350,000 loan. When I saw the title I thought they were paying everyone's interest over the 6 months. That would be incredibly generous of them!

  • Stalker on 03/04/2020 - 21:25
    +2

    hahahahahahahahah….sorry, this is just a little bit funny.

  • Eggsperential on 03/04/2020 - 21:26
    -8

    Really think the banks should write off all interest charges for 6 mths if folks are unable to pay temporarily due to a worldwide pandemic.

    And they wonder why people think they're scum.

    • Anonymous18 on 03/04/2020 - 21:28
      +17

      because they are a charity?

      • Eggsperential on 03/04/2020 - 21:37
        -5

        Yeah I get they are a for profit business however this is an unprecedented event in our history. The Government is spending hundreds of billions of dollars propping up the economy and trying to keep businesses and people afloat.

        The banks on the other hand have just come out of a scandal where they were charging dead people and the vulnerable. The least they can do is take a bit of a hit to their bottom line for people who are really in need because of no fault of their own.

        Just my 2 cents. If you're pro-bank more power to ya.

        • Anonymous18 on 03/04/2020 - 21:53
          +14

          not pro bank at all, but I am involved in businesses generally and at the end of the day, individuals and businesses need to take some responsibility for their own destiny. We are one of the poorest nations at saving money at the individual level, and then individuals expect someone else to give then a free kick during tough times.

          This flows on btw, tenants who think landlord are rolling in cash and should just waive their rent.

          • CacheHunter on 04/04/2020 - 01:38

            @Anonymous18: I agree on responsibility (I've upvoted you), but this isn't like a normal recession.
            The economic hit isn't because of coronavirus, but the government's actions to try and stop it spreading and protect the lives of mainly old people. It's hard to take responsibility for the government effectively confiscating our businesses, our cars, our public transport tickets and front door keys by making us stay in our homes for goodness knows how long.

            I also don't blame others because it's as if government wants to discourage people taking responsibility. I had arrangements in place to protect me in case of something bad happening to the economy. As a result, I miss out on all Government support, plus get taxed more than someone on newstart so that I'm actually $500/fn worse off after tax than if I hadn't prepared or saved and relied on government handouts. Lesson learned, I won't do it again.

            • Gradesbrah on 04/04/2020 - 07:51
              +2

              @CacheHunter: You did the right thing. If Government intervention hadn’t been so significant you would be on the other side of the argument watching everyone else collapse while you weathered the economic challenge. Unless this sets a precedent for the new standard approach of the government I would say your approach will see you deservedly successful over time.

              Plus, there is a bit of pride you should feel in being self sufficient.

            • cuckchump on 04/04/2020 - 13:00

              @CacheHunter: same position as u mate, save every paycheque only to see the govt bailin out the ppl who didnt save for a rainy day, i cant even access the stimulus payments, just hoping i get 1-2 shifts a week instead of touching my savings

    • spc12go on 03/04/2020 - 21:33
      +1

      Banks are private company, that needs to make money so they can pay the salary of their staff and the high paying senior leadership team.

      • Eggsperential on 03/04/2020 - 21:40
        +3

        The big 4 made around $30 billion in profit last year alone. I think they can afford to do more than just defer payments and offer a $40 credit on loans of $350k.

        • BobLim on 03/04/2020 - 21:44
          +2

          And all of that profit belongs to the shareholders.

          What about people saving for a house while investing in the bank? Why should they suffer to make it easier for those who have more than them?

          • Eggsperential on 03/04/2020 - 21:54
            -2

            @BobLim: Everyone is suffering. We have to share the pain. These are people who have lost their livelihoods.

            • BobLim on 03/04/2020 - 21:55

              @Eggsperential: Share price was immediately smashed - they've already taken a big hit, unlike homeowners

              • fusion17 on 04/04/2020 - 00:46

                @BobLim: You think house prices will not drop after this?!

                • BobLim on 04/04/2020 - 02:43

                  @fusion17: If the banks didn't charge interest for the whole time the mortgage holders were struggling or unemployed then why should prices be affected? There would be no reason to sell, which is what would cause the prices to potentially drop.

                  A drop in the market value isn't a realised loss for shares or houses, but there's currently only evidence of the former as I said.

                  Are brokers offering a similar 6-month payment holiday on margin loans for equity investing? I doubt it, and expect one would be compelled to liquidate and realise the losses.

                  Personally I suspect there's still a reasonable level of pent-up housing demand from the last year, plus all who wouldn't buy during the current crisis may seek to rejoin the market as soon as things are looking up. Fair chance that could stem or mask any real price effects in many areas for a couple of months until everyone else gets their jobs back and we're bubbling away as ever.

                  It's too early to call how the economy will be going over the next couple of years. Maybe everyone currently living in an apartment will realise they want their own land?

      • Muscles on 03/04/2020 - 21:58

        And most likely your super

    • [Deactivated] on 03/04/2020 - 22:56

      Impossible. They are obliged under financial law to collect interest. All they can do is defer a loan for a short period of time, but you are still required to pay the interest owed at some point.

      • spc12go on 04/04/2020 - 01:01
        -2

        Whilst I totally agree and understand that. But the Federal government are free to introduce any law they wish for this challenging time.

        They said it’s ok not to pay rent. I am sure they can draft something for the banks to shelf the law for 6 months. So they could help those in difficult situation. But they will stick to this is the law blah blah.

        The same goes for Transurban for the toll rise. NSW government said its contractural obligation so they can’t do anything. They can introduce laws to banned public gathering of more than two person and going out except for certain reasons. They can’t stop a toll company from increasing the toll charge. They can’t seem to be able to multi task.

        It’s all too hard.

        • [Deactivated] on 04/04/2020 - 04:46
          +2

          They did NOT say it’s ok not to pay rent. This is a moratorium on evictions, you are still required to pay your rent. If circumstances mean that payment in full is not possible it is a holding off from payments, not a cancellation. If you can’t pay your rent now, you have been given grace for six months, but will have to catch up when you are able to pay it again.

  • akula on 03/04/2020 - 21:37

    Will the deferral affect one's credit score /history ?

    • Slut on 04/04/2020 - 09:50

      Nope. It shouldn’t. They’re literally taking your next due date and pushing it out by six months.

    • Mike4Bargins on 04/04/2020 - 09:54

      ANZ does not record covid related deferal as a non-payment.

  • gravel on 03/04/2020 - 21:50
    +7

    NO they are not a charity, they ( the big 4 ) do however hold a privileged position in so far as they are 100% back by the federal government. I guess it's a commercial choice to keep the interest accruing, However I know of at least one case where this was not explained to the customer. Missing six payments over the life of a loan is not overly significant , if things return to relative normality, but customers need to understand what it means.
    And just by the by in the example above a $350K loan accrues ( assuming the balance is 350K) at say 3% $875 a month interest and around $27.5 per month compounded over six months ( on the monthly interest charge ), thats $165 over six months. $45 is 27%, which is token ( assuming what is written above is correct ).

    Frankly in my view the banks are doing bugger all. What about credit card interest rates?

    I guess it a whole separate debate about moral obligation in times like these. If you followed the RC, when it comes to banks I wouldn't hold my breath. I hope I am proven wrong.

  • JetBombat on 03/04/2020 - 22:06
    +2

    Spend $350,000 get $45 back and we thought credit card deals were ridiculous lately

  • maxall on 03/04/2020 - 22:19

    interest on accumulated interest over 6 months… WTF… All these big 4 and coles, wollies are milk from public via this epidemic crisis.

  • thehub on 03/04/2020 - 22:31
    +14

    I am not out to defend the major banks. And I certainly don't work for one.

    But to the arguments above, some logic needs to be spelt out.

    The dollar amount that the majors earned in profit is not that meaningful as an argument. Sure, the major banks earned billions. But there are also billions of dollars of shareholder and debt holder capital invested in them. The banks' ROEs are heading below 10%. That is not a level of return that is supernormal. They earn billions simply because they are such large enterprises, not because they are somehow earning abnormal levels of returns.

    Residential mortgages make up at least 60% of the total loans at the majors. Imagine if they offered mortgagors 6 months payment deferral as well as waiving of interest. Banks will be making losses, and if they lose the confidence of debt and equity investors, what do you think will be happening?

    To someone saying above that they are 100% backed by the Federal government - that is not accurate. The government does provide a limited guarantee for retail deposits, but that is to protect retail depositors, they do not "100% back" the banks. They do not provide any guarantee of any of the debt (or equity) funds that the banks raise. The most that can be argued is that implicitly there is some support from the government, in other words, if there is some sort of crisis and one of the major banks is on the brink of collapse, people expect the government would step in to provide some sort of support.

    • [Deactivated] on 03/04/2020 - 22:42
      +2

      Thanks. Unbiased and quite factual.

      Used to be upto $1mio deposit during the GFC, and reduced to 250k per person. That is the cumulative amount in a single ADI.

      Super profit amongst the big 4s is long gone. Interest rate is at record low. This directly impact the NIM on banks, and will significantly reduce profit.

  • [Deactivated] on 03/04/2020 - 22:39
    +5

    I guess this pandemic brings out the true colour of various individuals. The selfish, the entitled, the generous, and the zen-ed ones.

    Consumers are so well protected in Australia with "responsible lending" law, and yet people are still complaining can't afford a mortgage at the very beginning of losing a job.

    It seems the maths not adding up, consumer mortgages were assessed at 7% (now effective rate + 2% buffer). That is easily 10-20k/year buffer depending on loan size/how long the loans been taken out for.

    Sure, it is tough. Have a spoon of cement.

  • [Deactivated] on 03/04/2020 - 22:53
    +2

    All they are doing is offsetting the small portion of interest that is capitalised interest portion over a 6 month deferral. So effectively over the 6 month period you will just be paying your regular amount of interest and you won’t be worse off for the defferal. Seems fine to me.

    • wise penny on 03/04/2020 - 23:03

      Exactly, $45 for a $350k loan is almost negligible. I don't see much benefit.

  • Rajserp on 03/04/2020 - 23:21

    Wow… amazing! /s

  • cheaplee on 03/04/2020 - 23:23
    +6

    Do they need to go through such a big hoo-ha just to tell us they aren't charging interest on interest for people who can't even pay the original interest?

    The banks are not doing this for us.

    If it is misinterpreted by 1 person who defers for 6 months thinking that 'overall interest' will be 'offset'/waived the bank has just made $3500 of accrued and yet to be paid interest.

    Based on their very modest 'average loan' of $350,000. So in reality they would make much more. When you add the $3500 into the capital and it sticks around for some time it compounds.

    They will start charging interest on interest again in 6 months, probably very quietly without any announcement at all.

    • wise penny on 04/04/2020 - 10:32

      Well said!! I think their contribution is on the compound interest (interest on interest) but the original interest will be accrued to the principal.

    • Gatto on 04/04/2020 - 11:49
      +1

      You actually hit the nail on the head. The banks have “generously” offered a $45 one off payment to prevent the interest on interest charges over the next 6 months. None of the banks have mentioned the continued interest on interest charges over the full term of the loan.
      Long story short… the banks are PROFITING from deferring payments.

      • El-Rhi on 04/04/2020 - 16:40

        I have read Facebook comments and so many CBA customers think CBA is refunding their whole interest. I can see the complaints skyrocket once people actually realise what’s going on. Not CBAs fault, just general misinterpretation from customers.

        • cheaplee on 04/04/2020 - 17:54

          I think it is their fault though.

          Big splashy anouncements about how generous they are being in this time of crisis.

          Their choice of wording is very specific. The goal of this campaign is to get as many people as possible to defer payments, even those that don't need to.

          I asked for this to be taken down for the following reasons
          1. It is not actually a bargin
          2. If one considers it a bargain it is not really obtainable. If you are with CBA you get $45, if not you can try refinance, but at a time like this, good luck!
          3. It's an ad - not allowed
          4. It's part of a Reserve Bank Scheme aka a government program. Also not allowed.

          The mod responded to my first point,saying it's up to OzB to decide. They then closed the case and ignored my protest about point 3 and 4.

          Oh and it's posted by someone associated with CBA.

          Maybe I'm the crazy one though because there are 23+ votes and only 3- votes

          • El-Rhi on 04/04/2020 - 18:11

            @cheaplee: Agree, it’s not a bargain and will cause a lot of confusion

  • cheaplee on 03/04/2020 - 23:32
    +9

    Actually I'm not sure this meets ANY criteria for being a bargain.

    Mods should take it down.

    It's a thing, not a good thing, definitely not a bargain

  • Wootwootwoot on 04/04/2020 - 00:27

    In other words, pay $5000, get $50 back?

  • H E B on 04/04/2020 - 12:28

    So if I sign up now will I still qualify for this 'deal'?

  • El-Rhi on 04/04/2020 - 16:34

    Wonder how many will think CBA is paying their interest then complain when the interest gets capitalised each month? Most don’t know what interest on interest means and will just assume it means interest.

  • drmojo on 05/04/2020 - 02:44
    -1

    This isn’t even a bargain and a rather lame response from the banks in this crisis. And what about those ridiculous inflated credit card interest rates?

    • El-Rhi on 05/04/2020 - 06:52

      There are plenty of low rate credit cards around 12% out there in the market. Remember that credit cards are unsecured debt, with much higher risk of loss to the bank… that’s why rates are relatively high and hardly ever move

    • Associateddust @ Commonwealth Bank on 05/04/2020 - 07:47

      You don't pay off the full balance of your credit card every month?

  • Frozensage on 08/04/2020 - 21:43

    i can't see anywhere from anz or nab that they are doing this…

  • Ozb12 on 08/04/2020 - 23:15

    Does anyone know how would the tax treatment work? Generally for investment property, rent = income and interest = deductible expense.
    If repayment is paused but interest is still accruing, is it still considered an expense?

    Also, after 6 months when repayment resume but interest amount is now greater than what it would have otherwise been, does the entire interest amount becomes tax deductible?

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