Upgrade Your Home Loan and Save

With big rate discounts, it's not surprising that package loans make up a large proportion of home loan business written by the banks, with around half of all home loans written as part of a package. The burning question is, does the interest rate saving compensate for the higher fee? The short answer is yes, particularly if you are borrowing in excess of $250,000. The annual fee is fixed so the larger the mortgage, the lower the impact this fee will have on overall cost.

How does a package stack up against stand alone products? We compared a $350,000 loan taken as a package against a standard variable loan and a basic no-frills loan. Credit card and transaction accounts were added to these last two home loans to make the comparison fair.

The table below is based on average rates from the five major banks on a $350,000 loan.

The table clearly shows you’re way ahead with a package loan. You’ll save as much as $2,310 compared to a standard variable loan with separate transaction account and credit card.

Even taking a standard variable home loan without the transaction account and credit card will still cost you $2,200 more than a package with the lot.

You’ll also be $105 better off with a package than the no-frills loan and separate products.

Admittedly there are some people who just want the cheapest loan they can find and would not use a credit card and transaction account included in a package.

These people may be better off with a no-frills loan, particularly for a smaller amount, if they are absolutely certain they will not need loan flexibility in the years to come.

Getting something for nothing?

Not many of us like passing up something for nothing. That’s why a home loan package is so tempting.

Its main drawcards are:

A standard variable mortgage for less than the price of a no-frills mortgage
Free transaction account
Free credit card

However, it also offers loan flexibility and features that are hard to measure in dollar terms. If you’re new to the home loan game, you’re likely to be dazzled by lenders’ advertised interest rates, not realising that other factors may come into play as the years go on.

For instance, if you pay extra into a cheap ‘no-frills’ loan and want to access that money, you may have to pay a fee every time. You may not be able to deposit a lump sum such as a tax return into the loan. You may not be able to get the loan paid out earlier by managing your money through an offset account, you may have to pay to switch from variable interest to fixed, and the list goes on.

If you are borrowing above $250,000, upgrading to a package with its fully featured home loan will guard against being locked into a loan that may not suit your changing needs down the track.

Besides paying less than you would pay for a no-frills loan, you get a transaction account and credit card thrown in for free. Getting something for nothing is always a good thing.

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