Dear Nicole, in 2007, my ex-husband and I bought our first home. We went with Commonwealth Bank and locked in at 7.49 per cent – which at the time was about right – for 15 years. Had we known the astronomical break fees (close to $200,000 in the earlier years, and still at $85,000), we would not have signed. When we tried to change our mortgage or have a reduction in the interest rate due to family circumstances (the realisation our disabled son was going to need full-time care for all his life) we were met with a resounding “no”, unless break fees were met. We begged CBA but its only suggestion was to go interest-only, as we have been since 2014. We have paid off just $70,000 of a $470,000 loan over 14 years. Eventually, at the end of last year, CBA dropped our rate to 4 per cent in accordance with a ruling to some customers. The bank still wouldn’t let us refinance but did later drop the rate to 3.54 per cent. The mortgage stress put a huge strain on our marriage: it broke down. I feel so terribly duped. Sarah, Brisbane
I don’t think anyone reading this can be unmoved by your story, Sarah. I’m horrified.
In 2007, interest rates seemed to be moving relentlessly higher. However, the global credit crack-up hit in 2008 and official interest rates were slashed from 7.25 per cent to just 3 per cent. But you continued bleeding 7.49 per cent interest as the cash rate tumbled all the way to less than 1 per cent.
It’s no surprise the financial pressure has been so personally devastating.
In response, Commonwealth Bank executive general manager home buying Michael Baumann says: “We are committed to working with the customer to find a suitable solution for her current financial situation.”
To me, there are two big ethical problems with CBA’s treatment of you.
The first occurred when in 2014 you approached the bank in hardship. By giving you the option of interest-only, and maintaining your 7.49 per cent rate, it stopped you getting ahead on your loan.
Sarah, my CBA probing – “Do you still sell fixed rates for periods as long as 15 years? Is that good for customers?” – revealed the second problem in the bank’s treatment of you: it “removed these products from sale” … in 2015.
So, in 2015 CBA deemed these products were no longer appropriate. But it wasn’t until late 2019 that it adjusted the rates of the customers stuck with them.
CBA says: “We pro-actively made a decision to reduce rates for customers who held one of our 10 or 15-year fixed-rate products. On a voluntary basis, we made the decision to bring them more in line with unprecedented low prevailing interest rates.”
The 2019 timing smacks of fear that in a post-Hayne royal commission banking world, continuing to hold customers on such expensive products would play badly.
Surely, if a product was deemed inappropriate in 2015, so, too, should have been the interest rates of the people caught out by them. Yet CBA collected four more years of excessive interest.
I would like to know what CBA intends to do to make this right. And if there is anyone else in this situation, I’d also like to know of that. Stay tuned.
Financial educator, commentator and author.