Packaged Loan Products Unpacked

Our loan writer, Brendan Vassallo, demystifies what you get with packaged loans and the benefits they can bring:

With so many loan products available, how do you know which type of product is best for you? Is cheap and cheerful the way to go, or is a packaged loan (with all the bells and whistles) better?

We’ve found that the benefits associated with home loan packages greatly outweigh the relatively minor costs associated with them.

By paying one annual fee (generally about $395/year), loan packages enable you to obtain the following benefits:

  • A fee-free credit card. The fee that you would otherwise pay for a credit card is cancelled in lieu of the annual loan package fee. For example, CBA’s Platinum Awards credit card charges an annual fee of $249/year - if held under CBA’s Mortgage Advantage package, this fee is waived.
  • A fee-free transaction account. The primary benefit of this is that it allows your savings to offset your home loan (if it is on a variable rate). For instance, if you have a home loan of $600,000 & have $50,000 in an offset account, you will only be charged interest on $550,000. If your home loan is on principal & interest repayments, your repayments will remain the same, but you will be paying off more of your principal each month (thereby creating redraw in your loan). If your loan is on interest-only repayments, your monthly repayments will reduce (as interest – and therefore the monthly payment – is charged only on the outstanding $550,000).
  • Ease of administration for multiple loan accounts. Whether you have 1 loan with your bank or 5, the annual package fee does not change. If you own multiple investment properties, consolidating your lending at one bank serves to simplify the administration of your loans and reduce the fees that you would otherwise pay.
  • Life-of-loan discounts on variable rates – Many “no frills” loan products offer competitive introductory rates (for instance, 3.59% with Westpac’s Flexi First loan product). However, these loans do not offer offset accounts. Furthermore, the low rates offered are often introductory rates, which will revert to a higher interest rate (sometimes 100 basis points higher) following the end of the introductory period.
    On the other hand, packaged loan products with variable interest rates below 4% are available for owner-occupiers from most lenders (whilst the advertised rates for these loans may be higher with some lenders – such as the big 4 banks - a good mortgage broker should be able to negotiate the rate below 4%).
    For instance, lenders such as AMP (3.59%) & ING (3.68%), offer competitive variable interest rates alongside the additional benefits associated with loan packages.
  • Discounts on insurances – Many lenders offer discounts on the insurance products that they offer should you take out a packaged loan with them.

In other words, the savings you have in an offset account will be earning interest at the same rate as you pay your mortgage. Not a bad deal!

For the reasons noted above, we tend to recommend packaged loan products where they are available.

If you would like to find out which loan and lender best suits you, call us on (Finance) 1300 905 680 or
(general property investing queries) 1300 266 350