Focus on mortgage payments not Commonwealth Bank talk of ‘flexibility’

EVERY dollar you pay off your mortgage should be seen as another step towards freedom. So don’t be swayed by bank talk of “flexibility”, writes Barefoot Investor.

WHENEVER I call the Commonwealth Bank media department, I’m about as welcome as Tony Abbott is … well, anywhere.

But that’s what I did this week … and I explained that, on this occasion, I was actually going to help them.

True dinks!

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What exactly is this “sweep” the CBA is planning?

“So … we’re going to be friends today?” said the bank PR representative with a nervous giggle.

“Oh, I think ‘friends’ is a little strong,” I replied. (Better to hose down her expectations from the get-go.)

But I was going to help her sort out a bit of customer confusion.

You see, in the past few weeks there have been media reports suggesting that Commbank is about to “sweep away” the extra money customers have in their mortgage (otherwise known as a redraw facility). The media reports advised people to get their money out quick. Otherwise it would be “swept away”.

As you’d expect, this caused a lot of Commbank customers to get very worried.

I know, because they’ve written to me, confused and in a panic, asking if they should take their money out of Commbank.

I totally understand why people are freaked out. After all, would anything shock you about Commbank right now?

Ripping off dead people? Check.

Funding terrorism? Sure.

Facing criminal charges? Maybe.

Fiddling with kids’ accounts? Yes, but they’re really sorry about that.

And that’s just in the last 12 months!

However, let’s not hit the panic button just yet. Instead, sit down, pour yourself a scotch, put on your smoking jacket, light a cigar, and let’s work this out.

What exactly is this “sweep” the CBA is planning?

Let’s be clear: if you have, say, $100,000 in your redraw facility, they are not going to sweep that money away.

Instead, according to Commbank, they’re going to give you a little more … “flexibility”.

Because you’ve got ahead on your mortgage (by having that $100,000 in your redraw facility), they’ll kindly recalculate your minimum repayments and allow you to pay less each month.

Sounds great!

The trouble is that if you pay less each month, you’ll end up paying till the very end of that 30-year term.

Which is exactly what Commbank wants (“maximum loan term equals maximum interest”).

However, if instead you kept paying the same as before, you’d pay the loan off years earlier.

Not good for Commbank.

Very good for you.

Personally I think “sweep away” is a little dramatic, but it is a fair point to make.

Now take another swig of scotch while I tell you what I’d do about all this.

First, don’t panic.

Second, get off the bloody fence! Every dollar you pay off your mortgage should be seen as another step towards freedom.

Stop thinking of it as money you can “redraw” … or you probably will.

Third, if you’re a CBA customer and you have surplus funds in your redraw facility that you may want to access at a later date, you could transfer that money into an offset account.

Finally, your goal should be to get debt free as quickly as possible. Always pay more than the minimum, no matter how much “flexibility” your bank offers.

Honestly, I really don’t think this is a major issue, and I don’t think it will affect many people.

In fact that’s what the Commbank PR person said, and, for the first time in a long while, I agree with the bank.

Now raise your glass and repeat after me: “Here’s to getting the banker off your back!”

WESTPAC SCREWS US (AGAIN)

I’M having so much fun, let’s top up our glass and go again.

This time, Westpac.

As you’ve probably heard, the bank jacked up its interest rates this week, despite the Reserve Bank not raising official interest rates.

Boo, hiss!

The rest of the banks will no doubt follow suit … all with furrowed brows and claims that it was a “very hard decision”.

In fact it’s nothing of the sort.

See, unlike pretty much every other business on the planet, the banks don’t need to worry about rising costs eating into their profits. There’s no need to absorb the costs like, say, retailers who import goods do.

Instead, they just jack up their prices.

Besides, they know that roughly eight in 10 of their customers will continue to cop it in the neck without even noticing … so why worry? Here’s what I’d do if I were a Westpac customer.

If you’re a good customer ‒ which means you have more than 20 per cent equity in your home, you’re a dedicated saver, and you have a stable income, you could complain to them and threaten to switch.

I have a word-for-word script (in my book) that has helped thousands of people get a better deal.

You may be surprised how well it works.

And what about if you’re not all those things?

You should do everything you can to become a good customer.

Mark my words, interest rates are moving higher (regardless of what the RBA does), and it’s time to get yourself in shape.

ULTIMATE FATHER’S DAY PRESENT

IT’S Father’s Day, so it’s time for me to do something that’s becoming a bit of a tradition.

It began in 2014 when we lost everything in a bushfire.

Today, almost all our stuff has been replaced.

Almost.

It is important to keep a “record” of a parent’s life.

You see, my wife’s father died a few years before I met her.

And in the fire we lost some of the last remaining photos of him, the letters he’d written, and the paintings he cherished.

Those can never be replaced.

How does my wife explain who her father was to me?

How does she explain who grandpa was to our kids?

The physical reminders are now lost in the ashes.

So, if you’re lucky enough to have your father still with you, here’s how you can give him the ultimate Father’s Day present.

Whip out your phone, hit “record”, and ask your dad the following questions:

1. How did you meet Mum?

2. What advice can you share with me about money, life and happiness?

3. What does being a dad mean to you?

4. What are you most proud of?

5. How would you like to be remembered?

This is not for Facebook or Snapchat. It’s for you and your family’s legacy.

One day, it’s all you’ll have left of him.

And you’ll treasure it.

Tread Your Own Path!

barefootinvestor.com

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice

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Originally published as Focus on mortgage payments not Commonwealth Bank talk of ‘flexibility’