When is an increase not an increase? When it’s a decrease of course! That curious statement is exactly what CBA wants you to believe with their latest announcement.
During our recent Update Seminars we pointed out the anomalies between the RBA Cash Rates and the amounts that the Banks are collectively holding back. This latest announcement from CBA confirms our conclusions and may even point the way to future changes.
Let’s take a closer look at what CBA has decided to do.
Basically, they have said that the interest rate discounts available under the Mortgage Advantage (MAV) package will be reduced by 0.15%. This package provides various discounts to the Standard Variable Rate depending on the size of the loan and has an annual fee attached. Generally the discount provides a benefit greater than the annual fee. It’s this discount that is being reduced.
Let me explain how this works using this simple example:
Previously you might get 5.30% variable interest rate less MAV discount of 0.70% = 4.60%
The MAV discount will be reduced by 0.15% from 0.70% to 0.55%
Now you only get the 0.55 discount off 5.30% so your rate is 4.75%
You can see how you are paying more now because the discount is lower.
By the way, it’s also irrelevant whether the decreased discount applies to existing or new borrowers. Effectively the CBA is offering a more expensive product as a result of these changes.
I have no doubt that other Banks will follow suit and the reducing discounts available in Professional packages will become the norm quite quickly.
It’s also interesting to consider that If we factor in the previous withheld discount of 0.12% on top of this latest change we can see that the consumer is paying an extra 0.27% than they were last month.
That pretty much negates the RBA decision to drop the cash rate 0.25%.
Banks are pretty clever when it comes to marketing. They know that they have to increase their rates and fees to continue to show profits for their shareholders and they also know that they are not popular right now given their failure to pass on the full amount of the last RBA reduction. The pressure to maintain profits will continue to build and the other Banks may be forced to develop similar measures to those announced by the CBA.
We’ll keep you informed of any developments in this space.
To see how your loans stack up in the marketplace, why not come and see us for a Mortgage Review.