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.

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.

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.

→Related article: Offset account versus redraw facility: What’s the difference?

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.

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.