businessOwned by: ASX Listed
monetization_onFunded by: Retail deposits and wholesale capital markets
securityLMI Provider: Genworth & some self-insured
account_balanceLender type: Major Bank
CBA is the largest bank in Australia so it’s no surprise that they’re also the most popular home loan lender in Australia. More than a quarter of all home loans are with the Commonwealth Bank.
As a major bank, they suit most home buyers, upgraders, investors and refinancers. However their pricing varies from time to time and they’re rarely the market leader. They’re trying to differentiate themselves from the other banks with better internet banking, mobile banking apps, faster loan processing and common sense lending policy.
How do CBA’s home loans compare?
They’re great at
- Most home buyers and investors
- Flexible lending policy allows many employment types
- People buying in rural areas and remote towns
- Large size property loans
- Solutions for self-employed borrowers and guarantor loans
- Market-leading internet and mobile banking
- Sophisticated credit scoring means more common sense loan assessments
- Assessing difficult or complex loan applications via an experienced credit team
- They can approve more loans as they have a DUA
- Quick to assess your application
- They have an Australia-wide ATM and branch network
- Sometimes they offer market-leading refinance rebates and cashbacks.
- They have features like multiple free offset accounts, redraw, split loans, top-ups, flexible repayments and repayment holidays.
- One of the major banks participating in First Home Loan Deposit Scheme.
- LMI waiver for medical professionals and industry professionals to purchase established dwelling for owner occupied purpose
But they’ve got some drawbacks…
- High interest rates when borrowing over 90% of the property value depending on case by case basis
- Slow and confusing construction loan process
- Rarely consider people with a bad credit history
- CBA has delayed passing on rate cuts more than other major banks.
- Your loan will be declined if it’s used for business purposes
- Their LMI premiums are expensive, particularly for self-employed people and investors
- They don’t offer SMSF loans.
- They are slow to release their policy changes publicly.
Coronavirus / COVID-19 Policy Changes: CBA
The number one concern for lenders during this COVID-19 crisis is income stability, i.e. can borrowers make their repayments?
For unusual income types such as commission / overtime/ bonus / casual most lenders will question it or ignore it. CBA has not made a formal policy change however anecdotally our brokers have seen them be more conservative with these income types.
If you work in an industry that is significantly (tourism, hospitality, entertainment and retail etc. ) affected by COVID-19 then some lenders will decline your loan. CBA has not made any formal announcement about this yet.
CBA also announced that 100% of overtime income can be used if you are an emergency frontline employee, which includes:
- Fire fighter / Ambulance Officer / Paramedic
- Police Officer
- Hospital Employed Nurses
- Employed Doctors in the Emergency Department
To qualify (requirements):
- You must be employed on a fulltime basis and be in a frontline role (ie not administrative or office role).
- The payslip or letter from the employer must evidence that it has met the requirements to use 100%.
- Where the payslip does not evidence the requirements a separate letter from the employer must be obtained.
For nurses not employed by a hospital or doctors not employed by the hospital and in the Emergency Department, only 80% of the overtime income is used for servicing – no exceptions will be applied.
Coronavirus / COVID-19: CBA mortgage relief
CommBank (CBA) is allowing its mortgage customers to temporarily stop their mortgage repayments (mortgage holiday) for up to 6 months.
This is intended to help customers affected by the coronavirus (COVID-19) and is part of CBA’s mortgage relief program.
For the 6 month deferral period, no repayments are required.
Please note that interest continues to accrue during this period and this interest as well as any fees are added on to your home loan balance, i.e. interest is capitalised.
The loan term is also extended so that your repayments do not increase as a result of the deferral period.
Interestingly, CBA announced that they will make a one-time payment to offset the interest on interest being charged to customers over the deferral.
According to their statement, “This means for an average loan of $350,000, CBA will be refunding approximately $45 to offset the effect of interest on interest over the six-month period.” This is a tiny amount. The real benefit is the repayment deferral for 6 months.
To free up some cash, there are other options available such as:
- Reducing your mortgage repayments to the minimum monthly repayments.
- Switching to interest-only repayments to reduce your repayments.
- Accessing your available redraw balance. Please note that if you’re applying for a mortgage holiday, you’ll need to transfer your available redraw to another account otherwise, your repayments will be drawn down first from the available redraw.
- Utilising funds in your offset account.
CBA home loan customers now have the option to switch to interest-only repayments or to extend their interest-only loan term by 12 months, without a full serviceability assessment.
Existing home loan customers can apply provided:
- They are not in arrears.
- They are not in financial hardship.
- There will be a minimum of one year remaining on the contracted loan term at the expiry of the proposed interest-only term.
What home loan types do CBA have?
CBA’s main home loan is the Wealth Package combined with their Standard Variable Rate Home Loan. For a low annual fee you’ll receive a large interest rate discount, waived fees on many bank products, discounted insurance and a 100% offset account.
The Wealth Package is suitable for loans over $250,000 in most cases. But what if you have a smaller loan?
The 3 Year Special Economiser and the No Fee Variable Rate Loan are the most common choice for smaller loan sizes. These have less features, but also less fees.
CBA has a range of fixed rate home loans with the option to fix for 1 – 7 years. Finally, they have a Viridian Line Of Credit which is useful if you need flexibility in the way you use your funds.
Can I negotiate with CBA to get a lower rate?
Yes, your mortgage broker can put in a pricing request to get the bank to match an offer from another bank. Unfortunately the system that calculates the offer that you’ll get is pretty smart and tends to give loyal customers a smaller discount!
It’s actually people who don’t bank with CBA, and in particular who don’t have a home loan with CBA, who may be able to get larger discounts.
If CBA refuses to give one of our customers a good discount then we usually get our relationship manager involved or choose to go with another lender.
Talk to one of our mortgage brokers by calling us on 1300 889 743 or complete our free assessment form.
Tips for applying with CBA
Have you heard about CBA’s credit scoring? When you apply for a home loan they’ll instantly give you a risk rating from 1 – 5. If you score a 1 or a 2 then you’ll likely be approved. A 3 will result in someone making a manual decision. Whereas a 4 or 5 will probably result in a decline.
CBA’s credit score has access to a lot more data than you think! If you’ve ever had a bank account or loan with CBA or even just applied for a loan then they know pretty much everything about you.
But if you’ve never banked with CBA then they don’t know much about you right? Wrong!
Their ATM network and merchant facilities that you use to pay with your credit card at shops allows them to know all about your spending habits and profile you before you even submit your loan application.
The good news is that their credit score is very accurate. When we apply with other banks, we sometimes see great borrowers get declined, and borderline ones get approved. Whereas with CBA we see consistently good quality decisions which are good for everyone.
Use CBA’s home loan application checklist to prepare for your mortgage application.
Note: This is the latest home loan checklist as of June 2019. Please refer to CBA for their most up-to-date document requirements.
CBA’s Home Loan Compassionate Care
In a first of its kind for Australians, Commonwealth Bank (CBA) has launched a new initiative called the Home Loan Compassionate Care.
With this initiative, CBA will support eligible owner-occupied home loan borrowers by paying (covering) their home loan repayments for around 12 months, if they or their spouse or dependent:
- passes away, or
- is medically certified with a terminal illness.
CBA’s Home Loan Compassionate Care comes at no extra cost and there’s no need to sign up for or to activate it – it is being provided together with AIA group.
It came into effect on 24 February 2020 and is available for eligible owner-occupied home loan customers aged between 18 and 59 years.
CBA: First Home Loan Deposit Scheme
CBA is one of the 27 lenders who is offering home loans under the First Home Loan Deposit Scheme (FHLDS).
National Housing Finance and Investment Corporation (NHFIC) will provide a guarantee for eligible first home buyers on low and middle incomes so that they can purchase a home with a deposit of as little as 5% without paying the lender’s mortgage insurance.
The scheme will support up to 10,000 home loans each financial year, starting from 1 January 2020.
CBA client story: Ken, VIC
Coming to the end of the fixed period of his CBA home loan, Ken was looking to refinance to a cheaper interest rate.
Earning $125,000 per annum at a private accounting practice, Ken was in a good position to qualify for a great interest rate but he was refinancing at around 90% of the property value.
This meant he would be hit with a large LMI bill, a cost he wanted to avoid.
After seeking advice from a mortgage broker, he was told that he could qualify for a significant interest discount and a 90% LVR (Loan to Value Ratio) LMI waiver with St George, Westpac and CBA because of his profession and income.
However, St George and Westpac wouldn’t take into account his wife’s income and would only take into account 80% of Ken’s share of the rental income (50%) in an investment property they owned together.
In order to afford the refinance at 90% LVR and avoid LMI, Ken needed to include his wife’s income and his share of the rental income to push his overall assessable income to $150,000.
At $125,000, this income alone wasn’t enough to meet the bank’s serviceability requirements.
CBA was the only lender that would take into account his wife’s income and they would also accept 80% of the rental income for the entire investment property, not just Ken’s share.
Ken was approved for the internal refinance with CBA and qualified for a 4.39% interest rate as a special deal with our brokers, an LMI waiver, and was even able to cash out $52,000 to put towards another investment property.
Compare CBA to other lenders
Not sure which lender is right for you? Our Home Loan Experts can help!
Talk to one of our mortgage brokers by calling us on 1300 889 743 or complete our free assessment form.