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Case study

Mark leaves Benny’s Bank

Mark has had a fully featured variable rate home loan with Benny’s Bank for about 3 years.

He pays a monthly loan service fee of $5 per month. He also pays a flat fee of $5 per month on his transaction account (from which the home loan is repaid via direct debit) at the same institution. This covers all his electronic withdrawals (except for non-Benny’s Bank ATMs) and three branch assisted withdrawals.

His interest rate is 5.81% p.a. and his loan balance is currently $250,000. If he continues at Benny’s Bank for the next 27 years, Mark will pay a total interest of $245,608 and $3240 in loan fees and monthly transaction account fees (5x12x27x2), for a total of $248,848.

Mark just wants to pay off his loan and forget about it. He doesn’t need all the bells and whistles and feels he can get a better deal somewhere else, so he decides to refinance his loan with Commonwealth Bank. Mark needs to pay Benny’s Bank $700 for the deferred establishment fee as refinancing now means the loan will be repaid within 4 years of when he first took it out (Commonwealth Bank pay off the loan for Mark in full and the title on the property is transferred from Benny’s Bank to Commonwealth Bank).

Refinance solution

Mark takes out a 3 Year Special Economiser loan over 25 years, which has a discounted Base Variable Rate of 4.96% p.a. for 3 years then rolls over to the Base Variable Rate of 5.13% p.a. There is also a current special offer for a monthly loan service fee waiver for the life of the loan (saving $8 per month). And since he has a Home Loan, Mark can also benefit from no monthly account or withdrawal fees (saving $4 per month) on a Smart Access transaction account with a Debit MasterCard. Using the card he can make purchases over the internet and by phone using his own money and also automatically pay his home loan via direct debit.

After 25 years, Mark will pay a total of $192,408 in interest and $600 for the upfront establishment fee, totalling $193,008. Therefore in comparison to Benny’s, he’s better off with Commonwealth Bank by $55,140 (remembering that the total for Benny’s was $248,848).

Better still, if he pays fortnightly (which Benny’s Bank didn’t make him aware of), he will pay off the loan in approximately 22 years and save $80,058 in interest compared to the loan at Benny’s.

  •  Important information

This is a hypothetical example for illustrative purposes only. It does not represent any particular individual.

Applications for finance are subject to the Bank’s normal credit approval. Full terms and conditions are included in the Loan Offer. Fees and charges are payable.