CommBank cuts rates on 'no frills' home loans

Commonwealth Bank has taken the knife to some of its ‘no-frills’ variable home loans, making rate reductions of 0.10 percentage points for owner-occupiers and up to 0.15 percentage points for investors.
CBA fixed rate cuts 14 Feb 2020
Source: Nils Versemann (Shutterstock)

Today’s rate cuts from CommBank sees its lowest owner-occupier variable rate drop to 2.69% (2.70% comparison rate), while for investors the major bank’s lowest variable rate now sits at 3.12% (3.13% comparison rate).

The interest rates for owner-occupiers and investors making principal and interest (P&I) and interest-only (IO) repayments on CBA’s Extra Home Loan products are now as follows. The percentages in the “Product” column reflect the customer’s loan-to-value ratio (LVR) on their home loan.

Commonwealth Bank home loan interest rate changes
Owner-Occupied
Product Repayment type Old rate New rate Comparison rate Change
Extra Home Loan <=70% P&I 2.79% 2.69% 2.70% -0.10%
Extra Home Loan 70.01-80% P&I 2.79% 2.69% 2.70% -0.10%
Extra Home Loan 80.01-95% P&I 3.13% 3.13% 3.14%
Extra Home Loan <=70% IO 3.35% 3.25% 2.91% -0.10%
Extra Home Loan 70.01-80% IO 3.35% 3.25% 2.91% -0.10%
Investment
Product Repayment type Old rate New rate Comparison rate Change
Extra Home Loan <=70% P&I 3.27% 3.12% 3.13% -0.15%
Extra Home Loan 70.01-80% P&I 3.27% 3.15% 3.16% -0.12%
Extra Home Loan 80.01-95% P&I 3.54% 3.54% 3.55%
Extra Home Loan <=70% IO 3.83% 3.68% 3.34% -0.15%
Extra Home Loan 70.01-80% IO 3.83% 3.71% 3.37% -0.12%
Extra Home Loan 80.01-95% IO 4.10% 4.10% 3.77%
Source: www.canstar.com.au. Rates effective 25/09/2020.

What is CommBank’s Extra Home Loan?

CBA’s rate changes apply to some of the bank’s basic variable home loan products, called Extra Home Loans.

These loans don’t carry an offset account or extensive features, however they do allow for additional repayments and include a fee-free redraw facility, which could offer borrowers some flexibility or help them pay their loan off sooner.

Choosing a basic or package loan

Canstar analysis shows CBA’s owner-occupier Extra Home Loan rate of 2.69% is 1.16 percentage points below the bank’s equivalent loan with an offset account, which is its Wealth Package at a variable rate of 3.85% (4.27% comparison rate). The difference in monthly repayments between the two on a $400,000 loan over 30 years would be $255, excluding fees assuming both rates stayed the same throughout that time.

Looking across the market, further analysis of home loans on the Canstar database shows mortgage holders will pay an average of 0.37 percentage points more for a variable rate loan with an offset account, or $81 each month on a $400,000 home loan over 30 years.

Average owner occupier variable rates – offset vs no offset
With Offset Without Offset Difference
Average Rate 3.51% 3.14% 0.37%
Monthly Repayment $1,798 $1,717 $81
Source: www.canstar.com.au – 24/09/2020. Based on owner-occupier variable loans available for a loan amount of $400,000, at 80% LVR with principal & interest repayments; excluding introductory and first home buyer-only loans. Monthly repayment calculations assume a total loan term of 30 years.

Canstar finance expert Steve Mickenbecker says borrowers will typically pay more for a loan with an attached offset account, so it might be worth considering one of the basic loans available and taking advantage of the extra repayment feature, assuming your lender offers one.

“Getting ahead of your home loan repayment schedule can help to recession-proof your finances and build long-term wealth,” Mr Mickenbecker said.

“When no-frills loans first hit the market, they came with the drawback that you could not make extra repayments to get ahead. Nowadays, some of these loans enable you to make the extra repayments and if you need to you can redraw your money.

“Most no-frills loans do not have offset accounts, but for homeowners a redraw facility is a close substitute, and the subtle difference might not warrant a big interest rate differential,” he said.

Lowest variable home loan rates from the majors

CBA’s reduced Extra Home Loan variable rate of 2.69% now positions the bank ahead of its competitors ANZ and Westpac for this type of variable rate home loan, while NAB also carries a 2.69% rate (2.69% comparison rate) for its base variable rate product.

Lowest rate variable loans ($400k, 80% LVR) from the major banks
Provider Loan Rate Comparison Rate Monthly Repayment Offset Account Included?
NAB Base Variable Rate P&I Special Offer <80% 2.69% 2.69% $1,620 No
Commonwealth Bank Extra P&I 70-80% 2.69% 2.70% $1,620 No
ANZ Simplicity Plus P&I <80% Special Offer 2.72% 2.76% $1,627 No
Westpac Flexi First Option P&I 2-Year Promo Discount 2.29% (reverting to 2.79%) 2.72% $1,537 No
Source: www.canstar.com.au – 25/09/2020. Based on owner-occupier variable loans available for a loan amount of $400,000, at 80% LVR with principal & interest repayments; excluding introductory and first home buyer-only loans. Table sorted in ascending order by rate, followed by comparison rate, followed by alphabetically by company. Comparison rates calculated based on a $150,000 loan amount over a total loan term of 25 years. Monthly repayment calculations assume a total loan term of 30 years.

This article was reviewed by our Sub Editor Tom Letts before it was published as part of our fact-checking process.

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