Choice urges mortgage freeze caution
23/03/09 03:58 PM
Consumer
group Choice says customers need to be wary of the
Commonwealth Bank's offer to defer mortgage
payments.
While it praises the bank for offering deferred mortgage payments to some of its customers, it says it provides only short term relief.
The bank has announced a six-month break from repayments for customers who have lost their jobs or cannot find work, and a 12-month break in cases of extreme hardship.
Choice's Elissa Freeman says customers need to be aware of the long-term implications of taking advantage of the offer.
While it praises the bank for offering deferred mortgage payments to some of its customers, it says it provides only short term relief.
The bank has announced a six-month break from repayments for customers who have lost their jobs or cannot find work, and a 12-month break in cases of extreme hardship.
Choice's Elissa Freeman says customers need to be aware of the long-term implications of taking advantage of the offer.
"The offer that's being made by the Commonwealth
Bank is generous to the extent that it provides
short-term relief but it doesn't remove the
obligation to meet payments after the period of
relief is over and in fact there is a likelihood
that those payments could go up," she said.
"We don't have a situation where the banks for example are saying that they'll waive interest during that period. Interest will continue to be capitalising throughout that period."
But Commonwealth CEO Ralph Norris dismissed concerns the initiative would lead to a situation where, in the event a homeowner does not find a job in the time period, they would be saddled with higher repayments.
"Interest does still accrue, but their repayments will continue at the same level, what we're effectively doing is actually increasing the term of the loan, so if they have a holiday for six months we would extend the repayment period by another six months," he said.
He says record interest rate lows mean the bank was in a position to implement the scheme.
"This is very much the bank's idea," he said.
"I think in this environment capitalising interest at what are record low interest rates, is probably not a situation that would cause anybody any significant additional hardship."
Small businesses will not be eligible for the scheme, unless their debt is secured by a home mortgage.
"What we've done in the last week is reduced interest rates by another 25 basis points for our small business customers in order to give them further relief," Mr Norris said.
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"We don't have a situation where the banks for example are saying that they'll waive interest during that period. Interest will continue to be capitalising throughout that period."
But Commonwealth CEO Ralph Norris dismissed concerns the initiative would lead to a situation where, in the event a homeowner does not find a job in the time period, they would be saddled with higher repayments.
"Interest does still accrue, but their repayments will continue at the same level, what we're effectively doing is actually increasing the term of the loan, so if they have a holiday for six months we would extend the repayment period by another six months," he said.
He says record interest rate lows mean the bank was in a position to implement the scheme.
"This is very much the bank's idea," he said.
"I think in this environment capitalising interest at what are record low interest rates, is probably not a situation that would cause anybody any significant additional hardship."
Small businesses will not be eligible for the scheme, unless their debt is secured by a home mortgage.
"What we've done in the last week is reduced interest rates by another 25 basis points for our small business customers in order to give them further relief," Mr Norris said.
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