Banking packages that used to be called professional packages, that combine a mortgage, transaction account and credit card with the one institution are the best value on the home-lending market.
These packages offer a discount to the advertised rate and the saving on the interest more than covers the package fee. The bundling of services also offers convenience. They also tend to lock you in.
More than half of all new mortgages written by the major banks are "super sized" to packages these days.
Borrowers like them because they get the features of a standard variable-rate loan (and, increasingly, other types of loans) at the discounted price of a basic variable-rate loan.
Discounts are 0.4 to 0.7 percentage points, depending on the size of the loan. At one stage last year some brokers were given discretion to offer discounts of as much as 0.9 percentage points for loans over $300,000, but with the general tightening in the market, those deals are now hard to find.
Traditionally aimed at typical home-buyers, package banking has broadened its appeal to attract property investors and the self-employed.
Investors value loan options such as interest only, line-of-credit and discounts. Those who own their own business usually need a package with a good low-doc loan.
The top variable-rate packages are Adelaide Bank's Executive Offer, Newcastle Permanent's Premium Plus Package, Commonwealth Bank's Wealth Package and AMP Banking's Select Package.
The top five fixed-rate packages were offered by Commonwealth Bank, HSBC, BankSA and St George. [We do not recommend fixed rate mortgages at this time].
When taking out a package loan, there is a requirement to take other products, usually a deposit account and a credit card. This is attractive because the annual fee is bundled into the package's annual fee.
However, if the product offered in the package does not suit, there is no obligation to use them.
The type of credit card does vary between institutions. Many will offer their standard credit card but some, such as St George, offer a platinum card.
But there are some things to watch out for. Westpac includes its Altitude Gold card but the card fee is waived in only the first year rather than for the life of the package.
ANZ offers the choice of a rewards Visa gold card or a frequent flyer Visa gold card. The annual fee is waived but the rewards program fee is not.
We feel that home buyers shopping for a package should focus on the features of the home loan, making sure it offers a good rate and has plenty of flexibility, such as redraw and offset.
Property investors should look for deals that incorporate line-of-credit and interest-only options.
Some lenders offer discounts on fixed-rate loans, which could be useful.
Self-employed people will need a package with a low-doc mortgage at a reasonable price.
One very important trend of which borrowers should take note is that the major banks have used the credit-market turmoil of the past year to reassert their role as price-setters in the mortgage market - a role they have not played since specialist home-loan originators entered our market a decade ago.
The package-rate discount comes off the standard variable rate and should bring the cost of the loan close to rates on basic home loans. The only downer are the casts of teh addons which can erode the benefits of these discounts when the loan amounts are smaller.
