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Kiwibank is one of only three of the big five banks to offer ‘offset’ home loans.
ANALYSIS: Kiwibank, one of only three of the five big banks that do offset home loans, stuffed up badly with one customer.
An irate customer was so badly messed about by the bank, she complained to the Banking Ombudsman, winning herself over $5000 in compensation.
The ombudsman didn’t name the bank in her write-up of the case, but Kiwibank admitted when asked that it was the bank involved.
Things do go wrong from time to time, but the case is a reminder of the existence of one of the least talked about forms of home loan, which in turn is a reminder there’s more than one way to manage a mortgage.
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The woman’s bank told her it would take six to 10 weeks to split her home loan into two loans, one on a fixed rate, and the other on a floating offset mortgage.
Despite that extraordinary length of time, the bank failed to action the request.
When the woman demanded better, Kiwibank promised to make the changes immediately.
Bank, insurer, lender, broker or adviser done you wrong? Complain to one of the four official financial services complaints services. First published in 2019.
That was a much more realistic timeframe for making a simple change to a loan. The woman also asked to increase her repayments.
Sadly, the bank made a bit of a hash of things.
An offset mortgage is a home loan linked to a borrower’s savings and transaction accounts.
The value of the borrower’s savings is deducted from the amount owed on the homeloan for the purposes of calculating interest.
Someone with an offset home loan of $50,000, and savings of $10,000 would have the interest on their home loan calculated as if they owed just $40,000.
In return, the borrower gets no interest on their deposits.
Offset loans suit people who like to have cash savings, and a sense of financial stability. Bank of New Zealand, Westpac and Kiwibank offer them.
They are floating rate loans with a higher interest rate than fixed rate loans, so people tend to use them for only a portion of their overall home loan debt.
Westpac charges 7.99% for its offset home loan, BNZ 7.74% and Kiwibank 7.75%.
Floating rate loans can also be paid back at any time without penalty, meaning people can use any windfalls, or excess income to reduce their overall home loan quickly.
For many people, having 30-year home loans is unthinkable, bad for their wellbeing, and life hopes. They attack their loans. Some hire a financial coach like enable.me or NZ Home Loans. Some invest in property to build wealth to pay off their home loan. Others talk to their brokers, or banks, to devise their own get-out-of-debt-quick schemes.
More than half of home loan borrowers are ahead on their home loans, many having had a wake-up call during the early months of Covid that life is not always plain sailing.
BNZ’s latest financial statements show $2.6 billion of its home loans are offset loans.
The ombudsman case showed even after it tried to action its customers’ wishes, it only linked one of her accounts against her offset home loan.
The woman realised a few weeks later that the bank’s collective errors meant she owed $3000 more than she would have, had the bank done what she asked, when she asked.
The bank offered to put things right, and pay the woman $1200 in compensation, but later increased its offer to $5400, and the she agreed.
That sum is a reminder how fast people with a will to reduce their home loans can do it, if they have a bit of cash, and explore their options.
GOLDEN RULES:
- A home loan is most people’s largest financial obligation
- People adopt strategies to pay home loans faster
- Wellbeing is higher for people with no home loan
Source: news.google.com