Another mortgage question

Previously when we have borrowed money or extra money from Westpac, we have been charged interest on the amount in total, whether we have drawn it down or not. Each time this has happened I have rung the bank and yes, there was a mistake and no, you should only be charged interest on what has been drawn down. In other words we are then correctly charged interest on the money that we have borrowed. I noticed today that in identical circumstances where we arranged to borrow some money, it has not been drawn down but is sitting there waiting for us to do so, yet we are charged the interest as if we have drawn it down. I contacted our banker this morning and he told me that what they have done is correct, charged interest on the whole amount as if I had taken it all now. I replied that this was then a very expensive credit facility, about $100 a fortnight, just to have the money sitting there waiting to be drawn down and that I didn't think it was legit, and certainly not how it has been done before. Comments, thoughts?

It depends on the mortgage instrument - and my understanding is the banks can change the terms of an existing instrument but you would have had to have been notified of the change. We have used a mortgage product called Flexiloan from BankDirect (ASB) in the past - effectively it operates like an "overdraft" amount secured against the equity held in a property - and you only pay interest on the amount in OD.

eelcat - it's a matter of what you negotiate. Banks try to get as much out of you as they can and occasionally they have a customer who just pays up without complaining. So they try it with everyone.

I'd shop around to get a better deal.

Another thought. Given the global situation and the liklihood that obtaining credit in future will get tighter and tighter - it could well be that the banks won't like these type of facilities - as effectively its a fixed amount of credit that they must have available - but they aren't earning the full potential of that loan until the borrower draws down. Therefore, they may put pressure on people to reduce the amount of the facility (and charging interest on the maximum value of the facility is certainly one way to do that!).

If you want to retain the facility, but you want to pay less for it - I would suggest you draw down the entire balance and deposit it with another bank. At least that way you are only paying the difference between interest on borrowing and interest on saving.

After several emails and phone conversations, yes the bank has reversed the interest on the undrawn down amount which is what they have done in the past. Surely in this day and age of computers etc, I shouldn't have to do this every time.

Aria;400478 wrote: Another thought. Given the global situation and the liklihood that obtaining credit in future will get tighter and tighter - it could well be that the banks won't like these type of facilities - as effectively its a fixed amount of credit that they must have available - but they aren't earning the full potential of that loan until the borrower draws down. Therefore, they may put pressure on people to reduce the amount of the facility (and charging interest on the maximum value of the facility is certainly one way to do that!).

If you want to retain the facility, but you want to pay less for it - I would suggest you draw down the entire balance and deposit is with another bank. At least that way you are only paying the difference between interest on borrowing and interest on saving.

Have now done so (did it before I read your post) - agree, I think it is a case of the bank trying to minimize their costs by maximizing ours.