Bank’s explanation of threshold for early repayment charge unclear

Categories:

Lending, Fees, charges & rates,

Summary:

In August 2025, David and his wife Ashley had a fixed-rate home loan of $530,000 with the bank. The loan allowed them to repay up to an extra 5 per cent of the loan balance each year without paying an early repayment charge. Soon after taking out the loan, they increased their fortnightly repayments and several months after that, David asked to increase their repayments again and was told a charge would apply.

David questioned this, saying both the loan’s terms and the bank’s website stated that customers could repay up to an extra 5 per cent each year without charge. He complained that the information was unclear and misleading, causing them to miss opportunities to reduce the loan balance sooner. Had they been properly informed, he said, they would have instead made lump sum payments, which were treated differently.

Published:

June 2026

Our investigation

We considered the bank had not met its obligation under the Code of Banking Practice to communicate clearly and effectively. Neither the relevant contract clause nor the bank’s website explained that the bank treated lump sum payments and increased regular repayments differently when assessing the 5 per cent threshold for the early repayment charge. The effect of an increased regular repayment is calculated to the end of the fixed-rate period whereas the effect of a lump sum payment is calculated in the year it is made.

If the bank’s information had been clear, it is likely David and Ashley would have structured their repayments differently. In response, the bank offered them $4,500 to reduce the loan balance to recognise the missed opportunity to make higher repayments, along with the option for them to make a lump sum payment up to the remaining 5 per cent threshold without charge. The bank also said it would improve how it explained the 5 per cent threshold and early repayment charges to customers.