Bank Australia Basic Loan Review

Darren Pearce

Darren Pearce

8 min read

The basics

Bank Australia – formerly Bankmecu – is Australia’s first 100 per cent customer owned-bank. It promotes itself as being competitive on rates and driven towards creating positive social, environmental and cultural outcomes.

The Basic Loan is available to owner-occupiers, first home buyers, refinancers and investors, and may suit customers who prioritise a competitive interest rate. For those willing to sacrifice some flexibility and features to get on with the task of quickly paying down their mortgage, this product may appeal.

The Basic Loan gives you the simplicity of a low variable interest rate together with the benefit of no ongoing fees, so you can get to ‘mortgage free’ sooner.  If you hope to enter the property market with a low interest rate loan and have the discipline to take full advantage of lower repayments, the Bank Australia Basic loan includes handy features, such as repayment flexibility and a redraw facility.

While some upfront fees are payable, Bank Australia doesn’t charge any monthly or annual fees on this product. If you plan on making changes to the Basic Loan, it is advisable to weigh-up the benefits against the fees that may be payable. Bank Australia charges application, settlement and discharge fees which are generally unavoidable and broadly in line with other lenders. As always, it is good practice to check for the latest deals and negotiate your best outcome based on competitive alternatives.

Bank Australia positions itself as different from its bank and non-bank competitors by offering innovative products. One of its key differentiators is to provide a ‘biodiversity offset’ to help mitigate the negative environmental impacts resulting from building new homes. Bank Australia commits to protecting an equivalent amount of habitat in its Conservation Reserve to balance out the loss of habitat cleared to make way for new homes.

The highlights

The Bank Australia Basic Loan is a simple mortgage product, appropriate for customers who tend not take advantage of a range of premium features, but want to avoid the hefty fees that come along with full-featured loan packages.

For those times when life gets in the way, the Bank Australia Basic Loan provides you with the option to take a short break from your loan payments. This can be particularly handy if you are changing jobs, incurring unexpected medical expenses or going on maternity leave. Of course to be eligible some conditions will apply. It is important to be aware that during the loan repayment pause, interest continues to accrue on your home loan – so you need to ensure you don’t end up worse off in the long term, following some short term relief.

The Bank Australia Basic Loan provides customers with flexible repayment options. You can make extra payments without penalty, which can significantly reduce the term of your loan. If you find yourself with some extra cash or a larger sum, you have the freedom to take advantage of the additional repayment option.

The Bank Australia Basic Loan gives the option for principal and interest or interest-only payments for those customers looking for payment flexibility. By choosing to pay only the interest component on your loan, your repayments will be comparatively lower, allowing you to free up extra cash when the budget is tight. You can also choose to set your repayments at weekly, fortnightly or monthly to work in with your income and budget.

If you need to get access to the extra money you’ve built up in your loan, the Bank Australia Basic Loan includes a redraw facility. This can be a very effective feature which provides a simple method to significantly reduce the length and cost of your loan, and gives you a way to access excess funds you have when you need them. It’s easy to use this facility, however a minimum redraw amount is payable along with a redraw fee for each transaction.

The Bank Australia Basic Loan gives you the option of a split loan facility, which is an option generally associated with more fully featured packages. For those customers wanting to balance the risks of interest rate movements, you have the option of splitting your loan between a variable and a fixed rate with no penalty.

More specific information on the Bank Australia Basic Loan is available here.

The lowlights

For some customers, a ‘no-frills’ home loan option will not put enough ticks in the right boxes to make it a good fit for their requirements. Some first-home buyers may benefit from the lower minimum loan amount but find themselves unable to fund a 20 per cent minimum deposit. If the amount borrowed is more than 80 per cent and up to a maximum of 95 per cent of the property value, you will be required to pay Lender’s Mortgage Insurance.

Although simplicity is at the heart of basic loans, this comes at the expense of options. One feature you will need to learn to live without is an offset facility. The benefit of the offset facility is that it allows you to save on the amount of interest paid and helps reduce your loan term. Without an offset facility, Bank Australia Basic Loan customers will need to focus on maximising their lower variable rate, by making regular additional and lump sum repayments to reduce their loan balances quickly.

While the Bank Australia Basic Loan is offered as both a full documentation and a ‘low doc’ option, customers are required to setup a ‘salary credit’ in order to be eligible for the lowest variable rate. This means you need to transfer your full salary into the loan account or a minimum amount for those who are self-employed or working as contractors.

Given the wide range of home loan products available to consumers, it’s important to ensure that you select the one which best suits your own circumstances. Bank Australia provides a variety of home loan alternatives suitable for different priorities such as fixed interest rates, bridging finance, self-managed super fund limited recourse loans, line of credit and fully featured premium loan packages. It’s always good practice to check for the latest deals and negotiate your best outcome based on all the competitive alternatives.

The verdict

The Bank Australia Basic Loan gives you payment flexibility together with a competitive interest rate and no annual or account keeping fees. If you’re confident you can pay off your home loan quickly, the Bank Australia Basic Loan may be the package that helps you to your goal of being ‘mortgage free’ sooner.

However, if you think a basic loan will not accommodate your changing needs and you may end up continually incurring fees for changes, you may want to consider more fully featured packages. These packages tend to include fee-free 100 per cent offset facilities, line of credit facilities, linked credit card and savings accounts and bundling options with other financial and insurance products.

The Bank Australia Basic Loan is a straightforward mortgage, suitable for customers looking to enter the property market with a low interest rate and maximise the opportunity of lower repayments. The Basic Loan will appeal to owner-occupiers and investors who value a low variable rate, prefer a no-fuss banking experience and are prepared to compromise on a range of other premium features.

The bottom line

Given the wide range of loans available with different interest rates, product features and fees, it pays to shop around to find the loan that fits your needs and circumstances.

Choosing a home loan is a huge decision and one that may have implications for two or even three decades, so it is important you take the time to do your due diligence to determine if this loan package is a good fit.

The terms and conditions associated with financial products can be confusing, so if you don’t fully understand the commitment you’re about to enter into it may be worth seeking professional advice to ensure the appropriateness of the product before signing.

Note: This review provides general information about the above home loan. Any views expressed are the author’s own. It is not intended to be a recommendation of a particular product. To the extent that this commentary may constitute general advice, this advice is of a general nature and does not take into account your individual objectives, financial circumstances or needs. We recommend that before you make any financial decision you seek professional advice from a suitably qualified adviser and read the PDS. Read more about our important disclosures here.

About the author

Darren Pearce

Darren Pearce

Darren Pearce is a personal finance expert and freelance writer.

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