Following the lead of the telecommunications industry, "bundling" or "packaging" is rapidly becoming the product du jour in the Australian home lending space.
Please note that the information below was current at the time of writing. For up to date package rates, please skip to the table below.
As the name implies, bundling refers to a suite of products , most commonly a mortgage loan, credit card and transaction account, offered as a single package. At first this type of product was the dominion of the major banks which targeted high net worth clients with their so called 'professional packages'. However, with many smaller players joining the party and intense competition for new lending, a smorgasbord of bundled products has become available. No longer just the province of the wealthy, now 'mum and dad' type borrowers can now enjoy the savings that come with a combined financial products.
The products currently on the market can be split into two categories - full packages and partial packages. Full packages aim to provide the client with a total financial solution and include numerous features on top of a basic loan and credit card such as discounts across a suite of insurance products, bonus interest on term deposits and discounted personal loans.
One of the more sophisticated examples is Westpac's Premier Advantage Package, which has all of these features plus a cash bonus on BT Super for Life, discounted margin loans and free access to investment research. On the other hand, partial packages are a little more basic, containing a loan and just one or two other products e.g. a credit card or discounted home and contents insurance. For a good example check out the Suncorp My Home Package.
Whilst there is a wide range of options for borrowers to choose from, all of the packages share some common elements. Most importantly, a discounted interest rate is offered on the home loan. Additionally, regular fees and charges on the other components are waived or discounted in favour of one annual fee (around $350 per year on average).
From the banks point of view these bells and whistles not only attract clientele but ensnare them into a wider range of products and services. This makes it inconvenient (though not impossible) for clients to leave. Essentially the banks aim to capture all of a client's financial business and keep them there for longer. Borrowers, on the other hand, are enticed by waivers on credit card fees, discounts on various types of insurance and the convenience of having everything under the same roof. However the main hook is that the packages always offer an interest rate discount - usually a haircut of between 0.4% to 0.8% off the advertised standard variable rate. As a general rule the larger the amount borrowed the deeper the discount and the greater the chance of negotiating an even better deal.
On the face of it, bundled packages appear very attractive but they are not without pitfalls. Whilst they are convenient they effectively tie clients to the one provider and this may prevent them from taking advantage of cheaper offers. Depending on one's personal circumstances they may be better off by shopping around to get the cheapest interest rate deal.
We decided to do some myth busting by taking a closer look at a selection of packages and comparing them with some 'vanilla' options.
For simplicity we have based all of the following scenarios on a 25 year principal and interest loan paid fortnightly.
ANZ Breakfree Package:
We'll start with one of the most publicised and fanciest packages around, the ANZ Breakfree Package. It is a complete financial solution for the sophisticated investor and includes a cornucopia of benefits on top of the standard fare. Namely interest and fee discounts on personal loans, discounted mortgage, car and health insurance, discounted financial planning and better features on the ANZ Access Advantage and ANZ One.
- Discount on Standard Variable Rate: 0.5 - 0.7%
- Effective Current Rate: 5.18 - 5.38%
- Annual Fee: $375
|Loan value||Fortnightly payments||Total interest payable.||Fees estimate|
*Effective rate on the above amounts is 5.28% p.a as of 11/9/13. (5.88% p.a. minus 0.60% p.a. discount)
NAB Choice Package on Tailored Home Loan Variable Rate
Next up is a simpler package targeted at first home buyers and 'mum and dad' borrowers, the NAB Choice Package. Highlights of this deal include no annual fees on selected credit cards, a 'receive 12 months of insurance pay for 11' offer on NAB Home Essentials Insurance and NAB Residential Investor Insurance and an interest bonus of 0.25% on standard term deposits.
- Discount on Standard Variable Rate: 0.60 - 0.85% (Depending on how much you borrow)
- Effective Rate: 5.28 - 5.03%
- Annual Fee: $395
|Loan value||Fortnightly payments||Total interest repayments.||Fees estimate|
*Effective rate for above amounts is 5.08% p.a as of 11/9/13. (5.88% p.a. minus 0.80% p.a. discount)
Suncorp Home Package Plus
Now we'll have a look at an offering from a smaller bank. Suncorp's Home Package Plus is fairly straightforward and aimed at middle-of-the-road borrowers. Benefits include zero annual fees on Standard, Gold, Platinum or Clear Option credit cards, Everyday Options account with unlimited transactions, discounts on home insurance, no fees on personal loans and a complimentary session with a financial planner.
- Discount on Standard Variable Rate: 1.05 -1.10% p.a. depending on amount borrowed
- Effective Rate: 4.94 - 4.89% p.a.
|Loan value||Fortnightly payments||Total interest repayments||Fees estimate|
*Effective rate is 4.94% p.a as of 11/9/13. (5.99% p.a. minus 1.05% p.a. discount)
AMP Basic Package
The AMP Basic Package home loan is a no frills home loan which features an offset account for a $5 monthly fee and but lacks a redraw facility and other common features like access to cheque books, BPAY abilities and Australia Post deposits.
- Interest rate: 5.20% p.a. (current as of 11/9/13)
- Annual Fee: $0
|Loan value||Fortnightly payments||Total interest repayments.||Fees estimate (not including offset account fee)|
*Effective rate is 5.20% p.a as of 11/9/13.
This product is sits just under the ANZ Breakfree package but slightly more expensive than the NAB and Suncorp package loans. If you factor the fee savings into the equation AMP's offering becomes cheaper than the NAB Choice Package, but still approximately $5000 more expensive than the Suncorp Home Package Plus. It's also lacking in features such as a redraw facility and limits additional payments to $10,000 a year.
Bankwest Online Home Loan
Bankwest is currently running a special deal for online customers with the Bankwest Online Home Loan, so in this comparison have supplied the lowest interest rate. The product is strictly no frills and offers only an online redraw facility and additional repayments; however, the standard variable interest rate it offers is one of the cheapest around. On top of this there are currently no establishment or ongoing service fees.
- Interest rate: 4.88%*
- Fees: $0*
|Loan value||Fortnightly payments||Total interest repayments.||Fees estimate|
*Effective rate is 4.88% p.a as of 11/9/13. Current No application fee offer as of 11/09/13
This delivers a saving of just under $3000 on the next cheapest loan in this comparison from Suncorp. Teamed with a BankWest Breeze Mastercard, a low fee, low interest product, a borrower can glean much better value than with the big four's packages. If you make additional repayments, which you can withdraw again with the redraw facility, you could make even further savings.
Suncorp is the clear winner from this selection, offering interest savings of $17,912.67 over the ANZ Breakfree Package on a $300,000 loan and $29,853 on a $499,999 loan. However, for a high net worth individual with an interest in share investments and insurance products the benefits of the ANZ Breakfree package may well offset this saving.
We now turn our attention to some plain 'vanilla' products to see if packages really do offer significant savings.
Despite their glitz and glamour, bundled packages are not always the best choice. The interest rate cut gives the product an advantage over the big four's standalone mortgages, but it's still in the consumer's best interest to shop around.
Intense competition amongst lenders means that special deals such as the Bankwest's Online Home Loan can save the customer tens of thousands of dollars in interest which more than compensates for the lack of bells and whistles.
Such deals are a fantastic option for young first home buyers or low to middle income families.
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It’s not all bad news for package loans
On the flip side wealthier clients with a large asset base can extract much more value from packages like the ANZ Breakfree or Westpac Premier Advantage. Features such as bonus interest on savings, discounts on margin loans and foreign transactions if used frequently could well be worthwhile.
In addition, remember that no-frills loans generally come with other features such as offset accounts. When used correctly, these can also benefit borrowers with savings, so ensure you do a full comparison.