Packaged home loans are very popular, especially when interest rates are rising. But be sure to crunch the numbers to see just how much of a discount you’ll enjoy. A package home loan may not always save a bundle. Chris Walker reports.
November 2, 2009
Packaged home loans fold a mortgage, everyday bank account and often a credit card into a single bundled product, combining convenience with big savings. In most cases, the annual card fee is waived and fee savings are provided on everyday banking. But it’s the rate discount on the home loan that appeals to most people.
The majority of home loan packages, as you will find listed here on RateCity, provide a rate discount of 0.7 percent though this tends to apply to mortgages of $250,000 or more. The discount is more likely to be around 0.5 percent for smaller home loans. It sounds like a compelling deal, especially in a climate of rising interest rates. However there’s a catch.
Significant annual fees
Home loan packages come with high fees, a cost that can run into hundreds of dollars annually. The best way to assess the value offered by a package is to refer to the loan’s comparison interest rate, which takes into account the regular interest rate, most upfront fees plus the annual package fee. Looked at this way, the rate discount isn’t always so generous.
By way of example, the headline rate (which doesn’t include fees) on National Australia Bank’s (NAB) Tailored Home Loan is 5.99 percent. Take the loan as part of a package and you’ll pay as little as 5.29 percent (depending on the loan amount) – a discount of up to 0.7 percent.
On the downside, NAB‘s Choice package charges an annual fee of $395. This lifts the comparison rate on loans over $250,000 to 5.67 percent – still lower than the comparison rate of 6.12 percent on the stand-alone home loan, but the rate discount is now a more modest 0.45 percent.
On a home loan of $350,000, opting for the NAB package deal will see you save around $1,575 in annual interest. For a loan of $200,000, which enjoys less of a package discount, the interest saving is about $700.
Do the math
With a wide variety of home loan packages to choose from it’s important to shop around and also work out the likely savings on a package for your particular circumstances. As a rule of thumb, the bigger the loan, the bigger the savings. If your home loan is small and you’re happy to opt for a basic credit card charging zero annual fees, you may be better off with separate products.
Finally, it isn’t always necessary to take out a package to receive discounts on financial products. Citibank for example, waives the monthly fee on its transaction account if you’re also a mortgage customer – a saving of $60 annually.