Could you save a packet with a package?

Home owners are flocking to ‘package loans’ combining a mortgage, transaction account and credit card all with the one lender – but are they all that they’re cracked up to be?

The appeal lies in the potential for big savings with the loan rate typically discounted by around 0.7 percent – for the full term.  The annual credit card fee is usually waived, and you can expect zero monthly account fees on the everyday account.

The downside is that package loans often come with an annual fee generally costing around $400. Despite this, most borrowers will come out in front thanks to the rate discount. But be sure to check the fine print because if you have a small mortgage the savings may not be so compelling.

By way of example, Westpac‘s Premier Advantage Package offers a rate discount of 0.7 percent on loans of $250,000 or more. Borrow less, and the discount drops to 0.4 percent. However the $395 annual fee applies irrespective of how much you borrow. So the smaller the loan, the less you may end up saving. For instance, on a loan of $200,000 the annual fee amounts to about 0.2 percent of the loan value meaning the net discount is just 2 percent. On a $500,000 loan the net discount is closer to 0.62 percent.

Consider the comparison rate

The annual package fee also makes it important to look at a lender’s comparison rate, which includes most upfront and ongoing fees. National Australia Bank’s Choice Package for example, has an advertised rate of 6.52 percent (loans of $250,000-plus) but the comparison rate is 6.88 percent, which is more than you’ll pay on a basic loan with some smaller lenders.

Bear in mind too that the savings on the everyday account and credit card may not be as alluring as they initially appear. In many cases, the credit cards bundled into a package are high rate cards best suited to cardholders who pay off the balance in full each month. And when it comes to the transaction account, a number of institutions including Citibank have introduced everyday accounts that scrap monthly fees altogether.

A package loan is definitely worth a look if you have a large home loan or you hold several mortgages including investment property loans. It can also be a money saver if you’re likely to use all the benefits offered by a package, which can include discounts on insurance and other financial products plus bonus rates on deposits. However for borrowers with straightforward needs or a modest home loan you could save more by cherry-picking the cheapest products from a range of providers.

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