If there’s one thing I’ve learned in my many years as a mortgage advisor, it’s that not all bank products are created equal. While most banks offer similar interest rates, the devil truly lies in the details of their mortgage products. This is particularly evident when we look at the flexibility built into different banks’ lending structures.
When clients ask me about bank recommendations, I often find myself steering them towards Westpac. Not because they’re necessarily the cheapest (though sometimes they are), but because their product flexibility stands head and shoulders above the rest. While other banks might score a respectable seven out of ten for their mortgage products, Westpac consistently ranks around eight or nine points.
But what does this flexibility actually mean for you as a borrower? Let’s break it down.
First, consider how you might want to manage your mortgage payments. With Westpac, you can set your payments at any level at the start of a fixed rate period and return to the minimum payment amount whenever you need to. While this might sound standard, other banks handle it quite differently. They’ll let you increase your payments, but they’ll also shorten your loan term accordingly. This can create problems if you need to reduce your payments later.
Here’s the catch with other banks: when you want to reduce your payments, you’re essentially asking them to extend the loan term back out. This represents an increased risk for the bank and often requires a full new application. Imagine needing to reduce your payments because of an income challenge, only to find yourself unable to do so because you can’t meet the bank’s current lending criteria. With Westpac, this isn’t an issue because they don’t automatically adjust the term when you increase your payments.
The flexibility extends further. During a fixed period, Westpac allows you to adjust your payments up or down by 20% – no penalties, no problems. Compare this to other banks that might cap adjustments at 5%, impose dollar limits, or even penalise you if you don’t maintain higher payments for the duration of the term.
One of the most valuable features – and one that often surprises my clients – is how Westpac handles extra payments. When you make payments above the minimum, you create a gap between your loan limit and your loan balance. This gap becomes available for redraw, creating a financial safety net that many people don’t realise they have. I’ve seen cases where clients have accumulated hundreds of thousands of dollars in available redraw without even realising it!
This flexibility proves invaluable in various situations. If you lose your job, face redundancy, need house repairs, want to buy a new car, or need a deposit for your next house, you can access these funds without having to make a new loan application. Most people think you need a floating loan or revolving credit to have this kind of flexibility – not so with Westpac.
So, to summarise:
- You can adjust payments up and down by 20% during a fixed period, no penalty no problem – other banks say 5% is the max, others specify a dollar limit. or force you to maintain the higher payments for the duration of the term otherwise you penalised
- Extra payments made create a gap between your loan limit and your loan balance. That gap can be redrawn.
- This creates an element of financial resilience. If you’re in the poo (for example made redundant) then this buffer can see you through and there’s no need to re-apply, just take it out.
- Need some house repair or a new car? Deposit on your next house? Most people think you have to have a floating loan or revolving credit to have this functionality. Nope. Not with Westpac.
Now, I should note that you can achieve similar results with other banks. The difference is that you need to deliberately structure your lending to create this flexibility. With Westpac, it’s built into their standard product offering. It’s just there, ready when you need it.
Focus on the product flexibility
The banking landscape has changed dramatically over the past few decades. The days of walking into your local branch where the manager knows you by name and makes lending decisions based on your character – not anymore. As one client recently said to me, “But I’ve been with my bank for 30 years – surely that counts for something?” Unfortunately, in today’s highly regulated environment, banking has become much more procedural, almost mechanised.
That’s why it’s crucial to focus on product features rather than bank relationships when making lending decisions. Look at the total package – interest rates matter, yes, but so do credit criteria and, crucially, product flexibility. These features can make a significant difference in how well your mortgage works for you over the long term. With all things being equal, I would send people down the Westpac path.
While I’m clearly a fan of Westpac’s mortgage product, the key message here isn’t about one bank versus another. It’s about understanding what flexibility you might need in your lending and ensuring your chosen bank can provide it. Whether it’s the ability to make additional payments, reduce payments when needed, or create a financial buffer through available redraws, these features can prove invaluable over the life of your loan.
Remember, your mortgage is likely to be with you for a couple of decades or more. While you might save a few dollars by chasing the lowest rate, having flexibility built into your loan structure could save you significantly more – both in money and stress – over the long term.
Last but not least – a practical checklist:
- Consider product flexibility (like the ability to make extra payments) not just rates.
- Don’t assume long-term bank relationships guarantee better treatment.
- Look at the total package including fees and flexibility.
- Choose a bank based on product features that match your needs.
- Consider offset accounts and revolving credit options if suitable.
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