Why isn’t it mandatory lenders automatically adjust P&I repayments on rate reductions?

Discussion in 'Loans & Mortgage Brokers' started by albanga, 5th Jan, 2020.

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  1. albanga

    albanga Well-Known Member

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    As per the topic, why is it not mandatory for banks to adjust reduced interest rates on P&I repayments?

    I know you sign a contract with a repayment amount but it gets adjusted instantly on a rate increase but from my experience only a few instantly adjust for a deduction?

    We all hear what a rate decrease means per week for households but it’s s but irrelevant if you can’t access it...

    And as I understand it it’s back discretion whether or not they adjust it at all?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Why should the government interfere in something like this?
    Generally paying off a loan quicker is a good thing.
     
  3. albanga

    albanga Well-Known Member

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    Totally agree.
    But isn’t the point of monetary policy to increase cash flow to increase spending to stimulate the economy? If the deduction is never passed onto repayments then isn’t it fairly pointless from that standpoint?

    It’s all good if your paying your loan off quicker but that doesn’t help the economy anytime soon.

    Or am I missing something here?
     
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  4. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    No bank ever got in trouble for encouraging you to pay off your loan faster, but they have gotten in trouble for doing the opposite.

    This isn't a question of government monetary policy or what's best for the economy at large. It's what's going to keep the bank safe from regulators.
     
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  5. Archaon

    Archaon Well-Known Member

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    Pretty sure you can just ask for a recalculation.

    The compounding benefit of paying down principle would be better than short term access to $40 a week etc.

    Those with redraw facilities would be able to access that money once it accumulates for more worthwhile purchases.
     
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  6. albanga

    albanga Well-Known Member

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    You can but it’s bank discretion whether or not they adjust it.

    Also the additional funds are not made available in redraw. Well not from my lender anyway. My repayments have never changed and I have 0 redraw available.
     
  7. Archaon

    Archaon Well-Known Member

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    That's interesting.

    I've made the bank suggested fortnightly repayments previously and have always ended up in front, instead of redrawing and reborrowing for tax confusion, I've just got them to take the fortnightly payment from redraw instead.
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Which bank? That is borrowing to make the payments and would involve capitalising interest.
     
  9. Archaon

    Archaon Well-Known Member

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    St George.
     
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  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    I didn't think that would allow that except with the portfolio product.
     
  11. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    Yes I noticed that a few years ago as well. As a work around you could ring the lender adjust repayments to the minimum then ring them again the next day and request you pay the original amount again. I assume the extra would then show in redraw.

    As to why they don't adjust down some do some don't. I personally would like to see them all required to make the reduction so it pumps money into the economy then maybe the RBA wouldn't need to lower rates so far to have the same effect.
     
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  12. albanga

    albanga Well-Known Member

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    That’s a great idea. I’ll call them today to see if they will adjust it to start with (NAB).

    I just find it really odd not all lenders do it.
    When any media outlet reports on rate reductions and what it means to repayments then they should all have a *

    * Only if your lender adjusts your repayments
    * You can contact your lender to adjust your repayments which they will do at their discretion.
    * If your lender chooses not to then the only way to reduce your repayments is to refinance to a new lender which costs will likely outweigh any saving for some time
     
  13. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    Some lenders have gone out of their way to adjust their policy to pay the extra amount. I think it was about 9 months ago the CBA sent an email to many customers about how they're adjusting P&I repayments.

    It was extremely confusing, most borrowers couldn't understand it, I had trouble and most of the people at the CBA couldn't explain it either. In essence it boiled down to they'll force higher repayments unless people asked for the minimum.

    What can I say? The country pushed for more bank scrutiny, this is just another example of the banks trying to appear to be doing the right thing. There's a decent logic to it, but it's going to be flawed for a lot of people.
     
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  14. albanga

    albanga Well-Known Member

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    As a FYI I called NAB and they provided me a recalculation which was over $50 a week which when you have a wife not working and a 6 week old is a lot of money.

    Even then the gentleman I spoke to had to submit a request for approval. Shouldn’t be an issue but it’s still more hurdles.
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    550 per week less in repayments?

    That is huge
     
  16. albanga

    albanga Well-Known Member

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    Haha you added a 5!
    I wish it was 550
     
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  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    I read the $ as a 5 I think.

    But even $50 pw is pretty decent
     
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