CBA Line of Credit Changing - Help

[Craig-G]

Received notice from the CBA stating:

From 1/04/09 we will no longer be offering the Line of Credit Reference Rate and your loan will be switched to our Residential Equity Rate. ...

The Line of Credit Reference Rate is reset every quarter. Once your loan is converted to the Residential Equity Rate, your interest rate will be a variable rate determined by the Bank and may change at any time.

I know this may be straight forward to many people but any notice from the bank makes me nervous. Is this a good thing, a bad thing or indifferent? Are they just saying that the way my interest is calculated is changing? Will there be any practical impact om my LOC?

I assume a lot of other forumites would have received this notice.

Thanks in advance - Craig

 

[Qlds007]

Just a matter of the Bank culling a few of its products and tightening the screws.

 

[wealth101]

hi Craig, we have not received any notice but also want to understand the impact. is it only with CBA ? should we take the title go to diff bank or close the loc and create an offset account instead?

Thank you.

Received notice from the CBA stating:



I know this may be straight forward to many people but any notice from the bank makes me nervous. Is this a good thing, a bad thing or indifferent? Are they just saying that the way my interest is calculated is changing? Will there be any practical impact om my LOC?

I assume a lot of other forumites would have received this notice.

Thanks in advance - Craig

 

[Rolf Latham]

Hiya Tracey

Its isnt a credit or structural change .

Its a change in the underlying way the product is PRICED

Previously your product was priced agains the prevailing market of bond rates if you like, with a margin attached.

Now the pricing is based off the RBA rate ( loosely)

Separate feedback on your fear,........ you may want to consider changing the product from a LOC to a term loan anyways if its a large chunk of money

ta
rolf

 

[nonrecourse]

Lines of credit can be wound back easier than a straight mortgage and is just part of the natural progression of the bank viewing your investment properties ask riskier than your PPOR. A lot of the inovative banking products will be withdrawn as property values come under closer scruitiny in the next 18 months.

Regards NR

 

[Rolf Latham]

Hiya NR

Im not saying it will happen anytime soon...........im simply saying if it happens, and market conditions deteriorate, one should be VERY prepared.

Borrowers with the majority of their loans and or buffers on LOCs should look over their shoulders................especially if they are also using second and third tier lenders , and be even more wary if those loans are via securitised lenders

ta
rolf

 

[nonrecourse]

Hiya NR

Im not saying it will happen anytime soon...........im simply saying if it happens, and market conditions deteriorate, one should be VERY prepared.

Borrowers with the majority of their loans and or buffers on LOCs should look over their shoulders................especially if they are also using second and third tier lenders , and be even more wary if those loans are via securitised lenders

ta
rolf

Hi rolf;
You don't have to convince me on your line of thought. About a year ago I spoke about LOC's that you draw down on as a reserve was risky if you didn't deposit in another bank. My rational was the bank doesn't have to be aware that your just giving them back their money in dribs and drabs when things are tight.

The loans officer just sees that your paying down your loc. Of course this money is costing you but for someone who doesn't have the ability to get their LVR's down to 30% this was one of the ways to manage your outstanding mortgages as the valuations get more conservative.

 

[Rolf Latham]

Dont think I will bite with the 30 % lvrs

I think I prefer to tend to my veggie garden.......... because that will be more valuable if we get to those lvrs

ta
rolf

 

[Highlygeared]

Can I presume that a borrowed amount sitting in an offset a/c is not considered the same as an undrawn LOC? Or am I confused?

 

[Rolf Latham]

On the basis of an all monies clause, yes

In reality, and in practice probably no.

LOC is undrawn loan, offset equivalent is technically your money.

If a loan is called, and you dont have the fat to place cash or other equity into the hands of the caller, you dont have much choice but to repay that loan................whether you have the funds in your LOC, in an offset or, even in an account with another lender.

The other lender approach buys time, but ultimately they will get you, be with with a judgement withon 90 or 120 days etc.

Thats why, to a large extent, going to the trouble of drawing loans and placing them with another funder sint going to fix your problem in the middle term.

Convrting the dollars to physical gold and sticking that in a secure place would work

ta
rolf

 

[Highlygeared]

Thats why, to a large extent, going to the trouble of drawing loans and placing them with another funder sint going to fix your problem in the middle term.

Convrting the dollars to physical gold and sticking that in a secure place would work

ta
rolf

How's that so Rolf? If you stick the money somewhere else, another lender, in gold, or under your mattress, how is it safer or smilarly at risk of being called in?

I mean if CBA gave me a loan now sitting in an offset and I deposited it with another bank, how will they 'know' what I did with it...and if they did, what could I do to make it safer from being called in? Wouldnt they just say, sell yours shares or gold bullion and return us the money within 90 days?

 

[wealth101]

Convrting the dollars to physical gold and sticking that in a secure place would work

ta
rolf

I like that

 

[Spectre]

Back to the original ? for a minute
Craig the CBA had 2 interest rate options
One based on 90 day bank bills
One based on variable rates

IMO - the 90 day bank bill one hasnt been a good product for years as the rate has been too high. Assuming you package etc
So by rights you should be a bit better off.

Suggest you check your contract to make sure they didnt put you on the wrong one by accident as well.

If it was done by a broker - some brokers know/knew of the difference, some didnt and simply put people into the right product with the wrong rate option.

 

[Rolf Latham]

I should qualify my comment

1. Placing your money into an account different than the lender will NOT protect that cash. The lender can obtain a judgement and that cash can be FOUND and targetted. You have no choice but to pay it back.

2. With the Gold analogy ( or other hidden asset) the lender will still chase a judgement against you, but you have a CHOICE as to whether you let those assets go.

Remember that this whole discussion has come about because of the "end of days" view presented by some. If it comes to that, figthing clean wont work, and your veggie patch, your 12 gauge and a few ounces of the gold stuff will be worth a whole lot more.

Spreading your cash into different cash deposits doesnt buy you protection per se, it buys you time, which in some cases is all you need.

Just my view though

ta
rolf

 

[Highlygeared]

Point taken, thanks. Definitely something to think about.

 

[Bradsdad]

How's that so Rolf? If you stick the money somewhere else, another lender, in gold, or under your mattress, how is it safer or smilarly at risk of being called in?

I mean if CBA gave me a loan now sitting in an offset and I deposited it with another bank, how will they 'know' what I did with it...and if they did, what could I do to make it safer from being called in? Wouldnt they just say, sell yours shares or gold bullion and return us the money within 90 days?

The only safe place is under my matress. plenty of room there at present for anyone interested.




Best I clarify "safe". It will be safe from any lenders clutches and evn yours if you ever want it back.

 

[Craig-G]

Thanks for the responses guys,

From what I take from the posts, I have nothing to worry about in respect to my recent letter as the LOC will effectively operate the same. The future is however a different story and the bank can recall/change products at will.

Certainly interesting times.

 

[sash]

Make sure you check the rates....I was supposed to get 5.09% on the LOC..but when they changed the rate was 5.79%.

Branch manager is fixing it for me!

Thanks for the responses guys,

From what I take from the posts, I have nothing to worry about in respect to my recent letter as the LOC will effectively operate the same. The future is however a different story and the bank can recall/change products at will.

Certainly interesting times.

 

[Perp]

The only safe place is under my matress. plenty of room there at present for anyone interested.

Man, I'd heard about the wild parties at your place...