Commonwealth Bank's guidance for home borrowers

The Commonwealth Bank today responded to the Australian Prudential Regulation Authority announcement concerning lending and risk management policies in the Banking industry.

The Bank said that it was appropriate that in the current environment, APRA share its concerns with the community which were broadly in line with those raised by the Bank’s CEO, Mr David Murray recently.

Mr Murray reinforced the Bank’s approach to sensible and sound lending practices by reminding customers that they should review their circumstances regularly. "We are very careful to remind customers to review any indebtedness that they may have," he said.

Mr Murray said home loan borrowers should take notice of the five "S" tips defined below when looking to borrow:

• SIMPLIFY
  Review your high cost and short-term debts. Aim to get these down as quickly as possible and roll them into a longer term, lower cost loan eg; home loan.

• SAVE
  The more you save the less you have to borrow.
  The old adage holds true – the cheapest money is your own. So don’t overcommit just to get into the market – save a sound deposit and contribute whatever equity to the purchase you can. Every $5000 less you borrow saves you $1800 over 10 years or $2800 over 15 years in interest costs (at 6.5% compounding).

• SLEEP
  Be comfortable with your repayments – it’s important to sleep at night. Where possible pay more than you need to and make an allowance for the unexpected. Getting ahead in your repayments helps protect you from interest rate rises and can provide a buffer for emergency expenditure.

• SHAPE
  Your life will change so make sure your loan can be shaped to meet your needs, both now and in the future eg: access to repayment redraw, split rates, repayment holidays.

• SHARE
  If you have a problem share it – and sooner rather than later. Commonwealth Bank has Home Loan Health checks to help clients adapt their loans to their circumstances and if there is a hiccup then action can be taken quickly to ease the problem (eg changing repayments).

Mr Murray reminded customers that home ownership should be considered as a long-term investment and allowance needs to be made for change – whether that be interest rates, home prices or personal circumstances. In this way the journey to ownership can be managed well and without undue stress.