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Packaged home loans remain a popular option for borrowers seeking discounts and banking convenience. Yet because lenders structure their packages differently, it's important to look beyond the headline benefits and assess whether the bundled products justify the ongoing costs.
What is a home loan package?
Package deals bundle a home loan with other financial products, such as an offset account, savings account, or credit card. Some packages also include fee discounts and benefits on insurance, share trading, or financial planning services.
For borrowers, the appeal is convenience. Keeping multiple banking products with one lender can simplify money management and provide access to package-only discounts and features.
For lenders, package deals can help strengthen customer loyalty. If a borrower decides to refinance their home loan, untangling several linked products may make switching providers more difficult.
However, a package home loan does not always offer the most competitive deal. While the interest rate may appear attractive, lower home loan rates may be available elsewhere.
The same applies to bundled products. Included savings accounts and credit cards may not deliver the best rates, rewards, or features compared with standalone alternatives.
Is a home loan package cheaper than a home loan with no package?
The answer to this depends on the details of the products in the package. For borrowers, the trick is to consider which products suit your needs.
Signing up to financial products just because they are offered as part of a package deal with your home loan could leave you with unwanted credit cards or accounts that could potentially add to your expenses.
You will not only have to compare the home loan interest rate, but also the comparison rate and annual package fees. Other products' fees to keep an eye out for include:
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Credit card annual fees, and interest rates if you have a balance.
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Bank account keeping fees.
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Uncompetitive fees or interest rates on other products such as car loans, personal loans, and share trading.
So while it's great to get a discount and a package deal discount sounds awesome, comparing the cost of a package deal requires you to compare the cost of each individual product with others in that market.
Pros and cons of a home loan package
As with any financial product, a home loan package has its advantages and drawbacks. Whether it's worth paying an annual package fee will depend on how many of the included features you actually use.
Pros of a home loan package
Potential interest rate discounts
Many lenders offer discounted home loan rates to package customers. For borrowers with larger loan balances, even a small rate reduction could translate into meaningful savings over time.
Access to an offset account
Home loan packages often include a full or partial offset account, which can help reduce interest charges by offsetting the mortgage balance against savings held in the account.
Fee savings and bundled benefits
Package deals may waive or reduce fees on products such as credit cards, transaction accounts, or insurance policies. Some lenders also provide discounts on wealth management and share trading services.
Convenience
Having multiple financial products with one lender can make banking easier to manage. Borrowers may benefit from a single online platform, consolidated statements, and streamlined customer support.
Cons of a home loan package
Annual package fees
Most home loan packages charge an ongoing annual fee. If you don't use the included products or benefits, the fee could outweigh any savings generated by the package.
Not always the cheapest option
A package loan may offer a discounted rate, but that doesn't guarantee it's the most competitive deal available. Some standalone home loans with no package fee may offer lower rates or better overall value.
Paying for features you don't use
Borrowers can end up paying for bundled products such as credit cards or transaction accounts that serve little purpose. Unused features can add unnecessary complexity and costs.
Refinancing can be more complicated
Because multiple products are linked together, switching lenders may require borrowers to close or replace several accounts. This can make the refinancing process more time-consuming than with a standard home loan.
Harder to compare
Home loan packages vary significantly between lenders. Differences in fees, discounts, account features, and bundled products can make it difficult to compare offers on a like-for-like basis.
Photo by Thought Catalog on Unsplash
First published in October 2019
Read more:
Home Loan Basics
