Variable Interest Rate with Offset - New Weekly Repayments

Mintee on 01/04/2025 - 17:27

Hi,

I recently received a letter from Bank of Melbourne stating that my new weekly repayment is XXX.XX at an interest rate of 6.04%. (they did this on their own with the recent rate cut) However, I have a document from July 6th, 2023, showing the same 6.04% interest rate but with a weekly repayment amount of YYY.YY, and there's about a $40 difference between the two amounts.

I called the bank to clarify and the representative mentioned that the new weekly repayment is based on the 'forecasted term' of my loan, but something doesn’t seem right. Shouldn't the weekly repayment amount remain consistent if the interest rate is the same, regardless of the forecasted term?

I would have expected that they respect the 'contracted term'…. since this has been the first interest rate drop in a while, I'm just a little lost.

If this is the banks approach should I have called them each week to lower my repayments to align to the forecasted term given there was money sitting in an offset account?

Honestly, in the end I personally don't care that they're different…. I'm just trying to understand the bank here.

Financial Home Loan Loan

Comments

  • tenpercent on 01/04/2025 - 17:39
    -1

    What does your loan contract say?

    • Mintee on 01/04/2025 - 17:45

      My loan contract or my contracted term remaining. If its my loan contract sorry, what exactly am I looking for here?

      • tenpercent on 01/04/2025 - 18:27

        Loan contract.
        How does the contract stipulate repayment amount is to be calculated?

        • Mintee on 01/04/2025 - 19:19
          -1

          Hmmmmm…. where exactly can I find a copy of this.

          • tenpercent on 01/04/2025 - 19:24
            +1

            @Mintee: I don't know. Where do you keep your important documents?

            • Mintee on 01/04/2025 - 19:28

              @tenpercent: Well…. it was all electronic at the time; I would have expected to find a electronic copy but obviously this isnt the case…. would have thought under the terms and conditions it would have had a copy, but obviously not

              • tenpercent on 01/04/2025 - 19:51
                +1

                @Mintee: I thought both parties to a loan contract were required to receive a copy. You should have received a copy or saved one.

    • SlickMick on 02/04/2025 - 10:01

      lol I tried to understand the interest calculations for my first home loan. No one could explain it to me, they end up putting me through to their accountants, but it was far too complex for me

    • Dr Phil on 02/04/2025 - 20:49
      -3

      OP should be having this discussion with thier bank.
      Not us

  • boomramada on 01/04/2025 - 18:14
    -2

    Why not call the bank and ask?

    • tenpercent on 01/04/2025 - 18:27
      +2

      OP did that, I think.

      I called the bank to clarify

  • silverstone2023 on 01/04/2025 - 19:32
    +1

    The money in your offset account reduced the interest charged. Therefore, your weekly repayment of YYY.YY was paying more of the principal. If this continued, you would pay of your loan earlier. Looks like the bank have aligned your new weekly payment of XXX.XX to match your loan term.

    • Mintee on 01/04/2025 - 19:42

      This is what I would expect… but my brain is confused because she said align it alligns to your 'forecasted term' - so that's 17 years… but I have a loan contract term of 26 years remaining.

      Using a basic loan amount of 100k
      if I have a forecasted term of 10 years - I would expect to pay $192 in principal payments per week (100 000 / 10 / 52)

      Whereas if I have a contracted term of 20 years - I would expect to pay $96 in principal payments per year (100 000 / 20 /52) assuming no interest right?

      Wouldnt the bank want me to pay $96 per week so that they can make more money out of me…. this is where im lost.

      • tenpercent on 01/04/2025 - 19:52
        +2

        We're a little lost too. We don't know whether XXXX.XX is greater than or less than YYYY.YY.

        • Mintee on 01/04/2025 - 20:03

          Less

          • tenpercent on 01/04/2025 - 20:08
            +2

            @Mintee: Which makes sense.
            You've paid down your principal faster than had you not had any money in the offset account.
            So now after recalculating your payments based on the newly forecast remaining duration of the loan your repayments have gone down.
            If you wish to continue paying down your loan faster you could always keep paying the $40 difference between the new repayment and old repayment amount. Or better still put each $40 additional payment into the offset account instead.

            • Mintee on 01/04/2025 - 20:47
              -1

              @tenpercent: So, should I be calling my bank almost every week to keep my repayments lower cuz theres funds in my offset if I want a lower weekly repayment?

              • tenpercent on 02/04/2025 - 07:52

                @Mintee: I'm not sure. I haven't read your loan contract so I cannot comment on how frequently or what will trigger them to reclaculate the repayments.

                It's unnecessary though. You can pay down your loan at the same rate as before by just paying more than what they are now asking you to pay.

      • Puglife on 01/04/2025 - 19:55

        I can't explain the variation but what I can explain is that the mortgage department at all the banks is clueless and/or incompetent from every interaction I have ever had with them, across multiple lenders.
        You would have better luck figuring this out then they ever will.

  • miwahni on 01/04/2025 - 21:44
    +3

    Can I suggest you go to any of the major banks' web pages, look up their loan repayment calculator and plug in your variables (rate, current balance including any redraw but not including offset) and remaining term in months and see what it says? And work out how it differs to your bank's repayments. Remember that the repayment that you had previously for the same interest rate was calculated on a different balance and a longer term.

    • Mintee on 02/04/2025 - 08:15

      Thanks - I did give this a go; and don't get close to the number on my letter :P

      • spal on 02/04/2025 - 10:00

        I believe the new repayment is calculated taking into account three factors, the outstanding capital, the outstanding term and the new interest rate. As you have an offset account, you would end up ahead in repayment of the loan as the repayments are the same every month, but with the money in offset account, you will charged interest on only the difference between the outstanding loan amount and the amount in offset account. So, with every repayment, you will be getting a bit ahead on your loan. As you said, the outstanding term is 26 years, but the forecasted term is 17 years. So, bank in calculating the monthly repayments, will work using the situation at the moment, the the outstanding capital, the outstanding term and the new interest rate.
        As you are ahead in your repayment, it makes sense that you will now be paying less than what you previously paid at the same rate, as the outstanding loan amount is less that last time you were at this interest rate.
        I hope this makes sense.
        BTW, you can always choose to maintain the re-payments, that way you will pay off the loan faster. Particularly, if this is not an investment loan and you have a unlimited re-draw, probably best to maintain the repayments and see the outstanding loan balance go down faster.

  • soan papdi on 02/04/2025 - 10:43

    The bank is reducing your repayment so that your forecasted period increases to match (or get close to) the remaining contract term. Presumably because they're hoping you will reduce your offset in the future (say to buy a car or an IP) and they will earn more interest.

    Since you have an offset, higher repayments doesn't have an added impact (interest earned is reduced the same amount both ways). If you want the repayment to be higher, you can ask for it.

  • Gdsamp on 02/04/2025 - 11:17
    +1

    Life gets a lot easier when you include a bit more detail.

  • TheFyrd on 02/04/2025 - 11:37

    So can I just confirm that they have adjusted your 30 year term? Irrespective of your offset and therefore predicted repayment date wtf they shouldn't adjust the term remaining and therefore mandatory principal amount.

    We're shotgunning our loan down, on track for ~10 years. As far as I'm concerned it'll eventually become a super cheap line of credit when I refinance.

  • lgacb08 on 02/04/2025 - 12:25

    If you have offset accounts variation in the weekly payment doesn't impact on your interest charge, unless you decide to put the extra money in red.

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