Home loan packages are a simple way to combine a home loan with other products with a single lender. These home loans often have competitive rates too, but you will need to pay an annual package fee (usually around $400 a year).
Common features of a package loan
Package home loans differ depending on the lender. However, some common features include:
- An interest rate discount. This discount is often tiered on the amount you borrow. This means that even as official rates rise and your lender raises their interest rates, you can maintain a lower interest rate.
- A 100% offset account. Many package loans come with an offset account. This is a transaction account linked to your home loan. Any savings you put in there will offset your mortgage principal and thus reduce the amount of interest you pay.
- Other financial products. The main point of a package loan is that it combines other financial products from the lender. This usually includes a bank account and credit card, but can also include insurance packages and other products, with discounts on some or all of them.
- An annual fee. In exchange for these benefits, a package home loan generally charges an ongoing yearly fee. Most lenders charge around $400 a year for this. But the package fee often replaces multiple other fees the lender charges for each product separately.
Should I get a home loan package?
When considering a home loan package, look beyond the discounts and bonuses. Ask yourself: Does this loan have a competitive interest rate? Is it suitable for my needs? Will I really use all the products in the package? Is the fee worth the benefits? This will help you decide if it's right for you.
Here are the main benefits and drawbacks of package home loans.
- Convenience. Combining multiple financial products with a single lender makes sense and is convenient. If the lender has a good app, you can use your cards, accounts and mortgage seamlessly.
- Discounts. You can often get decent discounts as part of the package, which can save you quite a lot.
- High annual fees. Package fees tend to be fairly high and are also charged every year.
- Products you don't need. If you just want a home loan, then you don't need a package that includes insurance discounts or a credit card.
You should look at it like this: If the package is convenient and you actually use all the products in it, then it may be a good deal. Just make sure the rate is competitive and the fees aren't too costly. If you don't need the other products in the package and you can find a lower interest elsewhere, then a package loan isn't for you.
A borrower who could benefit from a package loan
Kim is pretty happy with her current bank and its convenient app. When she needs a home loan, her bank offers her a variable rate package loan with an attached offset account and a credit card. The loan has a $400 annual package fee.
Kim likes the credit card, and the fee waiver makes it cheaper, although the package fee is high. Crucially, the loan's interest rate is very competitive and she can easily move her savings into the new offset account. This saves her money in interest charges immediately. And her bank's app makes managing everything easy.
For Kim, the package home loan is a great deal.
A borrower who is better off without a home loan package
Bryan is comparing home loans and finds a pretty competitive fixed rate loan. But it's a package loan that comes with a credit and offers discounts on health insurance. There's a $395 annual package fee.
The home loan is perfect for Bryan, but he doesn't need the credit card and he doesn't want health insurance. He calculates what the package fee would cost over 5 years: $1,975.
Bryan opts for a basic home loan from another lender instead. It has a similar interest rate but no ongoing fees. This works out much cheaper for Bryan.
How to compare package home loans
Just follow these steps to make sure the home loan package you're looking at is right for you:
- Compare interest rates. Look at both the advertised interest rate and the comparison rate. The comparison rate is an indicative rate which takes into account some of the fees you'll pay over the life of your loan, and is generally worked out using the example of a $150,000 loan taken out over 25 years.
- Compare fees. Package home loans come with annual fees. You'll want to make sure these fees are worth it in terms of features and interest rates.
- Compare features. Ensure that the loans you're looking at provide features you'll use. If you want to make extra repayments on your home loan, ensure your loan allows you to do this. An offset account is a great feature, but only if you use it.
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