Pack­age home loans

A stand­alone mort­gage, or even a DIY bun­dle, may pro­vide bet­ter value

Money Magazine Australia - - CONTENTS - Effie Za­hos

If you could save more than $37,000 over the life of your mort­gage by opt­ing for a non-pack­aged ver­sion, why then are over half of all new mort­gages writ­ten by the ma­jor banks su­per­sized to pack­ages? Is it the dis­counted loan or the lender’s strat­egy of lock­ing us in with lots of “good­ies” that drives the pop­u­lar­ity of these prod­ucts?

A pack­age home loan com­bines your mort­gage with a num­ber of ad­di­tional prod­ucts. Gen­er­ally these in­clude a fee-free credit card, fee-free trans­ac­tion ac­count, bonus rates on term de­posits and/or in­sur­ance prod­ucts at dis­counted prices. All these perks come at a sin­gle cost of around $400 a year.

The whole mar­ket­ing spiel be­hind pack­ages is that you want more than just a home loan. You’re af­ter the com­plete bank­ing ex­pe­ri­ence and for con­ve­nience you’re happy to have this with the one in­sti­tu­tion.

Sounds great but let’s be hon­est here. The real hero is the in­ter­est rate dis­count on the home loan – up to 0.9%. If this is what lures you into a pack­aged loan, then I’m afraid to say you could do bet­ter.

As­sum­ing a $400,000 home loan and like-with-like fea­tures, Canstar com­pared the cost of a low-rate pack­age loan with a low-rate stan­dard loan. Even though the in­ter­est dif­fer­ence is only 0.35%, by putting the $400 an­nual fee saved by not hav­ing a pack­age loan into the stand­alone loan the bor­rower would be $37,000 bet­ter off.

The sav­ings are big but it does de­pend on the bor­rower pick­ing a cheap home loan and, more im­por­tantly, hop­ing that it stays cheap for the re­main­der of its term. This isn’t al­ways that easy.

“Ev­ery­one’s per­sonal sit­u­a­tion is dif­fer­ent,” says Mitchell Wat­son, from Canstar. “When com­par­ing pack­age bank­ing dis­counts, pri­ori­tise the prod­ucts you will ac­tu­ally use. Af­ter all, you are pay­ing for the whole bank­ing bun­dle, whether you use it or not. The value you ul­ti­mately get will de­pend on how you use the prod­ucts.”

Typ­i­cally the larger the home loan the smaller the an­nual fee ap­pears in the com­par­i­son, says Wat­son.

If you like the idea of bundling your home loan but are not too sure whether you’d get value out of pre-packed ones, some len­ders do of­fer you the op­tion of cus­tomis­ing your own bun­dle and then they ap­ply an in­ter­est rate to that.

“This DIY ap­proach helps you tai­lor your loan but it’s a good idea to com­pare the to­tal of­fer,” says Wat­son. “You need to com­pare the fea­tures, fees and in­ter­est rate as­signed to your cus­tom-built loan against other loans in the mar­ket to make sure you’re get­ting what you want in a loan and for a com­pet­i­tive price.”

Two len­ders that cur­rently of­fer this fea­ture in­clude P&N Bank and Bendigo Bank.

P&N’s Home Loan & Bag al­lows cus­tomers to choose the prod­ucts that they may need. The home loan (3.99%) comes with both off­set and re­draw. No an­nual fee is charged. Avail­able prod­ucts in­clude an an­nual fee-free credit card with a pur­chase rate that matches the home loan and a trans­ac­tion ac­count with no monthly fee.

Bendigo’s Con­nect Pack­age al­lows home­own­ers to con­nect three or more prod­ucts to save money. Each of the first three prod­ucts adds an ad­di­tional 0.05% dis­count to the 1% base dis­count (to­talling 1.15%).

If you’re still un­sure whether or not a pack­age home loan is a good idea, ask your­self what you’re re­ally want­ing to achieve. You can build your own great pack­age and avoid any on­go­ing fees.

Fi­nance ex­pert and author of The Great $20 Ad­ven­ture, Money’s ed­i­tor Effie Za­hos ap­pears reg­u­larly on TV and ra­dio. She started her ca­reer in bank­ing.

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