CBA to 'sweep' Australians’ redraw money on September 1

Dear Nicole, 

I read your article last weekend about excess mortgage payments potentially being swept away: “If you have extra money in your mortgage, get it out now.” I was quite alarmed but then realised it shouldn’t affect people who are on target to pay off their loan on time (although I understand if we lose a job etc most lenders could still lock up our overpayments). Is this correct? We can set up an offset account on the loan we have but lowering the loan balance has felt better.

Thanks, Sarah

The Commonwealth Bank is planning to sweep all redraw savings into home loans on September 1.

The Commonwealth Bank is planning to sweep all redraw savings into home loans on September 1.

When I wrote that article Sarah, I could only see a situation where a bank’s rumoured sweep of redraw funds could hit people who were somehow behind on their scheduled loan terms. In fact, it’s worse than that: it’s people who are ahead.

There’s (co-incidentally?) now an official webpage explaining what’s happening… and I can reveal the lender in question is our largest, CBA.

The bank details how its loans were ‘recast’, or recalculated, on July 31. This calculation used your current loan balance – including any savings you’ve parked in the mortgage – to issue a new minimum repayment amount that will keep your loan term at the full 25 or 30 years for which you originally signed up.

Then comes the sting: from September 1, if you’ve deposited extra but reduce your repayments to the now-minimum, your available redraw amount will slowly shrink until at the end of your contracted period, it is completely gone. With the recasting, that will be necessary to ensure you don’t fall behind on your loan.

The ‘sweep’. And bye bye Holy Sh*t fund, or holiday, or school fees.

Mortgage comparison website Mozo, which has been working with me to get to the bottom of the change that was understood to be coming, says this is different from the way redraw is treated by “most if not all” other lenders.

The loans affected are variable rate principal-and-interest home loans, investment loans or personal loans; note, not interest-only loans.

A CBA spokesperson says the bank is “proactively contacting customers” who will be immediately affected, and has notified all others via netbank statements. But many borrowers will not realise what’s happening.

So why the CBA sweep? The bank says flexibility to reduce your repayments. I say because, if you’ve deposited extra funds, it maximises the loan term and therefore the amount of interest you’ll ultimately pay.

DON’T fall into the trap of lowering your minimum repayments. Or consider getting your savings OUT … they’re less protected in a loan than ever before (and Sarah, if you’re not with CBA, be alert for your lender following suit).

By way of confirmation, CBA clearly states on its explainer page: "If you have a home loan and you’re currently using a redraw facility to deposit money that you plan on using later, an offset account may better suit your needs."

Remember, having money in a (good) offset account nets you the identical interest saving. But you have control of it.

Nicole Pedersen-McKinnon is a money educator and consumer advocate. [email protected]

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