Commbank -- changes to redraw from Feb 16th !?!?!

From 16 February this year we're introducing an important change to your home loan available redraw, to protect you from unexpected increases in your repayments.

So that you can pay back your balance within the loan term, as well as protect you from any unexpected increases to your principal and interest repayments, your redraw balance will now gradually reduce in line with the remaining life of your loan.
Your redraw balance also won't include any payments made towards your next minimum monthly repayment amount, so that your next repayment is always covered.
If you're planning to make additional repayments and redraw a specific amount later you might want to consider other options."​

What is this trickery? It sounds very, very shady to me.

 

It's not - it's just very poorly worded.

It's basically so people who pay their loan payment via direct credit can't redraw their payment before the loan payment is actually charged.

Currently they can, and if they redraw it they then don't have the funds in the loan to pay their payment, so it misses and causes all kinds of angst.

 

thanks for the replies.
I'm still confused and I'm going to have to contact the bank on Monday.
I may be confusing offset with redraw. But if that's the case why did they send me this bloody email.

 

Redraw is money in the actual loan, not offset. It probably won’t affect you, and in reality will only affect those who deposit funds directly into their loan. The amount they won’t be able to redraw will be no more than the amount of their next payment.

It seems like nothing to most of us, most probably, but for most people in the world not being able to access $1500 in redraw could be the difference between paying the power bill or not. So they let all their clients know.

 

Jess - you should be the writer of these announcements. You appear to fully understand what it means and can explain the reasoning and the real life impact whereas whoever wrote it in the first place couldn't!

 

Bank marketing teams often write AWESOME policy releases.....not

 

But what does this part mean?

Say I had a $500K 25 year loan which I have repaid $450K in 5 years. How much can I redraw?

 

To be honest, it's because I read it and almost had a heart attack - if what it read like was what actually was happening, it would have been truly crap for a lot of people. I grilled them to get to the bottom of it.

 

All of it less the amount of your next contracted repayment. But if you never make another payment, your redraw funds will gradually get smaller.

 

Well that would be OK - I was reading it as meaning I could only draw out the amount I could repay in the remaining 20 years based on the contracted payments - say 80% (more, I think) of the $450K?

 

The example on CBA says:

How it works
Cara takes out a $500,000 variable rate home loan with a loan term of 30 years. She makes principal and interest repayments on her loan. The graph shows how her home loan balance will decrease over time.

1. In year 10 her loan balance is $408,000
2. In year 25 her loan balance is $142,000

Let’s say Cara makes a $200,000 additional repayment toward her loan in year 10, and continues to pay the minimum repayment to pay off her loan in 30 years. Her minimum principal and interest repayment will reduce.

1. In year 10 her loan balance will be $208,000, while her available redraw balance will be $200,000. This adds up to what her loan balance would have been if she had made no additional repayment ($408,000)
2. In year 25 her loan balance would be $72,000, while her available redraw balance is $70,000. This adds up to what her loan balance would have been if she had made no additional repayment ($142,000). Other factors may affect your available redraw.

​

As I thought - you can no longer redraw up to the original balance (which from the example was $500K, in example 1 she previously would have been able to redraw $292K and can now only draw $200K.

How redraw will work over the life of the loan

 

Is the answer to redraw asap & put it into offset?

 

The key here is that after dumping in $200k, she's now paying the minimum that will allow her to still repay over 30 years.
It's adjusted to reflect the redraw. If she kept paying the same as she always was, without reducing the monthly payment, she'd still be able to redraw the full amount.

In effect, she's paying less per month and the difference is being taken out of her redraw. If she keeps the same payment, nothing gets taken out of redraw.

 

So if you make higher repayments where does the extra funds go??
Do they just get put in redraw.
Its all so confusing. I dont understand how your redraw can lower if your paying the correct amount

 

If you keep paying the same, and don't reduce your payment, nothing will change. The point above is that she reduced her monthly payment.

 

I'm really not getting that message from what CBA have written. Maybe my understanding of redraw has always been wrong, as we've never used it, just use offset.

If (from the CBA example above) Cara got to year 10 and made her normal payments so the loan balance was now $408K, I've always assumed she could redraw $92K to take her back up to the $500K. Presumably repayments would increase to cover the outstanding amount in the remaining term.

Happy to be corrected, but from how I'm reading this, if you pay the exact minimum payment there is no longer redraw available (if there ever was)?

 

Sorry worded that incorrectly. If you pay over the minimum amount

 

Nope - with P&I payments your limit reduces every payment.

 

Means you could sort of use it like an traditional IO loan ready to redraw for investment = GOOD...

Borrow $500K P&I over 30 years and pay down to $1K post settlement. Repayments would reduce to $5/ month. Redraw available wouldn't change much over the first few years..

Same as using an offset with P&I I suppose. $500K loan $500K in offset. Full scheduled repayments made but no interest accrued. Balance of both loan and offset reduce in tandem each month.