RateCity looks into the effects that reduced discounts on home loan packages will have on borrowers and how you can still save on your mortgage.
July 9, 2010
Many borrowers are drawn to home loan packages. Not only do they allow you to bundle multiple products such as your home loan, transaction account and credit card with the one institution but more importantly you can receive discounts on your mortgage interest rate, allowing you to save.
However, there are reports that Australia’s major banks may reduce the discounts they currently offer with mortgage packages in response to possible increases in funding costs.
RateCity’s recent research found that if this were to happen, Australians with a typical 25-year term mortgage could pay more than $40,000 more in mortgage repayments if the major banks were to cut discounts related to home loan packages.
Currently the major four banks (ANZ, Commonwealth Bank, National Australia Bank and Westpac) can allow discounts of up to 70 basis points (0.7 percent) off their standard variable rates for borrowers opting for packaged home loans. By removing these discounts entirely, borrowers who choose a standard variable rate home loan with a major bank could look at having to pay an extra $134 per month on average, or $40,235 over the life of the loan for a $300,000 mortgage.
“While packaged home loans are convenient to deal with one institution for all of your financial products it might not be worth the extra cost if the discount is reduced,” RateCity CEO Damian Smith said.
“We estimate that up to 80 percent of home loan customers with the major four banks have some form of package discount, and so any change here will hit a large number of Australian homeowners.”
How to beat the banks and still save
Whether you are a first home buyer with little experience in the market or you are looking at refinancing your loan in the near future, don’t despair as you still may be able to get a mortgage at a discount rate and save.
By comparing alternatives to packaged home loans online you may find a lower rate home loan available. For example, the average basic variable advertised rate of the four major banks is currently 6.78 percent compared to the best variable rate home loans at RateCity which start from as low as 6.34 percent (current as at July 5, 2010). That is a difference of 44 basis points (0.44 percent) which could save you $82 per month, more than $980 per year and nearly $25,000 over the life of a $300,000 mortgage.
There is a huge difference between top-rate home loans and what the major banks advertise as their discounted variable rates, so shop around and don’t pay any more than you have to.