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What is a Package Home Loan?

A comprehensive guide to package home loans – what they offer, and what they cost.

More and more Australians are opting for their home loan to be taken as part of a package deal that usually includes credit card and transaction account with the one financial institution.

Over half of all new mortgages written by the major banks have been supersized to packages and it’s not just smooth salesmanship that’s responsible. Product packaging can be good value on a long-term basis, with opportunities to save tens of thousands of dollars.

Traditionally aimed at typical home buyers, packages are now coming into their own, with more flexibility on types of loans offered, such as Interest Only Loan and Low Doc Loan options.

What is a package home loan?

Package banking involves combining your home loan and other commonly-used financial products into one bundle. Known as a ‘package home loan’, it can allow you to realise benefits such as access to fee waivers for a transaction or offset account, credit card with annual fee waived, discounts on insurance, discounted or free financial planning sessions and even discounted share trading.

Usually a package home loan comes with the option to bundle some of the following products:

In return for packaging all the products together, the financial institution will charge you one annual fee of around $300/year to $400/year that covers it all, as opposed to paying separate account-keeping fees or insurance premiums on each product.

Package banking has broadened its appeal to a wider customer base and we have seen its uptake by property investors and the self-employed, who are also keen to bundle their banking products into a package that suits them.

How does a package save money?

Apart from the convenience of bundling your banking together, the real hero of package banking is the discounted home loan rate that generally applies. This can be up to 0.50% p.a. off the going standard variable rate for the life of the loan.

With mortgage rates (still being) so low, the impact of the package discount becomes even more significant when viewed as a component of the overall interest cost. You may end up with a relatively cheap home loan rate once the package discount is applied.

Standard Variable vs Package Interest Rates

On CANSTAR’s database at the time of writing, the minimum, maximum and average home loan interest rates are as follows:

Rate Type Package Standard Variable Non-Package Variable Difference
Min 3.69% 3.35% 0.34%
Max 5.23% 5.73% -0.50%
Average 4.25% 4.52% -0.27%
Source: CANSTAR. Data as at 5 January 2017. Based on loans available for $350,000, 80% LVR and principal and interest repayments.

So the average package rate is 0.27% lower than the average standard variable rate. On a $350,000 home loan, the difference in average standard variable and average package rate equates to a saving of around $53/month – over $15,000 over the life of the loan. On that basis, an annual package fee of, say, $350/year would pay for itself within only 7 months to clear – and that doesn’t take account of any other discounts or fee waivers.

Because of these savings, customers might even be able to make extra home loan payments to cut several years off their loan (and ultimately save more money).

Try our Home Loan Comparison Calculator to get an idea of what’s going to work out better for you financially.

Annual package fees

Of course, the trade-off for a discount on home loan interest rates is the annual fee for package home loans. It can be steep, but it encompasses all products in the package. CANSTAR research released in January 2017 compared the annual fees between package mortgages and standalone mortgages:

Residential, Variable Rate Mortgages ($350,000 loan, 80% LVR)

Annualised Fee
Rate Type Package Standard Variable Non-Package Variable Difference
Min $0.00 $0.00 $0.00
Max $750.00 $398.00 $352.00
Average $320.00 $62.01 $257.99
Source: CANSTAR. Data as at 5 January 2017. Based on loans available for $350,000, 80% LVR and principal and interest repayments.

 

Residential, 3-Year Fixed Rate Mortgages ($350,000 loan, 80% LVR)

Annualised Fee
Rate Type Package 3 Year Fixed Non-Package 3 Year Fixed Difference
Min $0.00 $0.00 $0.00
Max $796.00 $398.00 $398.00
Average $343.58 $66.60 $276.98
Source: CANSTAR. Data as at 5 January 2017. Based on loans available for $350,000, 80% LVR and principal and interest repayments.

Typically, the larger the home loan, the smaller the annual fee appears in comparison. The value of the package to an individual lies in the overall savings made in the sum of cost versus the savings benefit of the product discounts attained by having a package.

In theory, the total amount saved on your home loan through the reduced interest rate should easily offset the costs of an annual fee (around $8,000 over 25 years).

Insurance and other discounts

Besides a lower interest rate, when taking out a package loan, there is often the requirement to sign up for certain other products, such as a credit card and transaction account with the same financial institution. Product packaging can be good value on a long-term basis, provided these ‘extras’ are of use to you.

When it comes to insurance products within a banking package, CANSTAR’s 2017 Package Home Loans research revealed how much of a discount you might expect to get off the premiums compared to a standalone policy:

Product Discount Offered
Min Avg Max
Car Insurance 5% 8% 10%
Landlord Insurance 5% 10% 15%
Income Protection Insurance 5% 6% 10%
Life Insurance 5% 6% 10%
Home and Contents Insurance 5% 10% 20%
Source: CANSTAR. Data as at 5 January 2017. Based on available packages listed on CANSTAR’s database.

But being in a package shouldn’t stop you from regularly comparing insurance products. You should check that you’re still getting good value with each renewal.

If you do find that there’s better products outside of your package, but don’t want to lose the benefits of your discounted home loan, don’t forget that you can try negotiating with your package provider. Chances are they’ll do as much as they can to hold on to a loyal customer.

So when deciding on a package loan, don’t forget to look beyond the home loan and ensure the other perks and benefits will provide a true benefit to you. The bottom line is that you pay for what you use when you buy standalone products, but with a package, you pay for the other products regardless of whether you use them or not.

Compare Home and Contents Insurance

Credit cards

In general, you will be offered a low fee credit card and a fee-free transaction account in your package deal. The type of credit card provided does vary between institutions, and some packages may only waive the annual fee for the first year.

It’s also important to note that some cards charge the rewards program membership fee separately to the annual fee. So even if your annual fee is being waived through the package, you may still have to pay the annual rewards membership fee.

Institutions may also offer several credit card choices, so it pays to select the one which reflects your usage and repayment levels. How the credit card is used will affect the savings achieved from the package. We have explained the different types of credit cards here, as well as how to choose a credit card and how to choose a rewards credit card.

CANSTAR provides an information service. It is not a credit provider, and in giving you information about credit products CANSTAR is not making any suggestion or recommendation to you about a particular credit product.

Compare Credit Cards

Transaction accounts

Similar to credit cards, transaction accounts in a package will not usually charge any ongoing account-keeping fees or maintenance fees. However, you may still have to pay transaction fees, but with the growing trend of “no fee” accounts, some transaction costs are a thing of the past.

Compare Transaction Accounts

Package Home Loans vs Basic Variable Loans

Why not go for the cheapest rate at the time?

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 make extra repayments. 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 a fixed rate… And the list goes on.

Everyone’s personal situation is different, but if you are borrowing above $250,000, upgrading to a package with its fully featured home loan could be worth consideration.

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, or the discounted insurance products. If that’s the case, the benefits of a package deal might not be as appealing.

This advice is general and has not taken into account your objectives, financial situation, or needs. Consider whether this advice is right for you. Consider the product disclosure statement (PDS) before making a purchase decision.

What different types of borrowers should look for in a package

Home Buyer

To the owner-occupier, naturally the most important part of a package is a low variable rate mortgage. It should still offer a certain degree of flexibility but must remain an affordable loan. The cost-sensitive home buyer will also benefit from getting a deposit account and a credit card without the usual account-keeping fees.

Property Investor

Borrowing to invest in multiple properties can mean this borrower has a slightly different package banking wishlist. Loan flexibility is right up there. Use of a line of credit or Interest Only are options favoured when the cashflow needs juggling. A discount on a fixed rate loan is definitely tempting. And lastly, a credit card upgrade fits the bill nicely.

Self-Employed

Running your own business can be a problem when it comes to applying for a home loan. The self-employed need a package with a low doc loan, ideally at the lowest cost, and with a discount incentive to reward repayment behaviour. A transaction account and credit card are also useful by-products.

Is a package home loan for you?

Packaging your banking products is not for everyone. It may not be for you if, for example:

  • You won’t use the products included in the package, thus getting limited benefit from paying for them.
  • The annual fee is not outweighed by the savings because of the way you use, or don’t use, the package.
  • You can find a credit card or insurance better suited to your needs elsewhere.

Also, if you are only looking to borrow a smaller amount such as $100,000, make sure you do all your sums first, as some of the discounts available may not be sufficient to cover the annual fee. Therefore, you may be better off favouring a low-cost, standalone home loan.

In doing your calculations, though, remember that package home loans often offer loan flexibility and features that are hard to measure in dollar terms.

When comparing package banking discounts, prioritise the products you will actually use. After all, you are paying for the whole banking bundle, whether you use it or not. The value you ultimately get will depend on how you use the products, so read the fine print before you make any decisions.

If you’re aiming for an average or large home loan, do the sums on a package deal with the one lender to check how much you will save in the long term compared to buying standalone products.

Where to find outstanding value

See CANSTAR’s most recent Package Home Loan Star Ratings report.

Compare Home Loans

Learn more about Home Loans

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