What is a package home loan?

Taking out a home loan can be a pretty clear cut deal focused solely on securing financing to help you purchase property. But if you want to sort out a few other financial needs with the same institution, you might consider a packaged home loan.

Many lenders present packages as a way for customers to save money across the life of their mortgage, alongside other financial products. An interest rate discount is on the table, along with more cost-saving features than a ‘no frills’ home loan, in exchange for you signing up to a bundle deal of the institution’s other products like credit cards, insurance or savings accounts. 

It sounds pretty swish, but it’s super important to consider all the loan costs, the additional features and discounted interest rate and size it up against other home loan types. Then compare this to the overall cost of holding the extra financial products separately or with other institutions. It may be convenient to have everything in one package, but it’s not automatically the most affordable option, even with the discounted interest rate.

Once you’ve done your mathematical due diligence, then you can check out the packaged home loan options below.

What can a packaged home loan offer?

Packaged home loans can come as fixed or variable, and interest rate discounts are often advertised as part of the deal. As is the case with basic home loan options, the variable option will generally offer more flexible features. This most commonly includes things like fee-free extra repayments and redraws, and access to an offset account.

Every package is different, but there are some common features and bundled products you’ll often see popping up, sometimes at discounted rates or with fees scrapped. These can include:

• Offset accounts
• Early repayment and redraw facilities
• Bank accounts and savings accounts
• Credit cards
• Insurance (home, car and life insurance offers)
• Other services like financial planning and share trading
  

Are there fees for packaged home loans?

Yes. You’re slightly more likely to see an annual fee on a fixed or variable package home loan than the basic offers, and it’s commonly higher. 

Some institutions will offer discounts or fee-waivers on the other bundled financial products in your package and rationlise this single ongoing fee as covering overarching service costs. When you’re calculating whether or not a packaged home loan will suit your circumstances, ensure the annual fee and any upfront costs do not outweigh the savings you might make on the discounted interest rate and products.

Like other home loans, you could also incur a discharge fee when you settle your home loan or choose to refinance with another lender.

How does a package loan save you money?

There are a few avenues where taking out a packaged home loan could potentially save you money. These include:

Discounted interest rates
Packages are often advertised with a discount interest rate across variable and fixed options. If that rate is competitive in the market, then you could see savings across the life of your loan.  

Product bundling: Discounts and fee waivers
If you were already in the market for a credit card, insurance policy or a new savings and transaction account, then setting these up via a packaged home loan could be cost-effective. As always, you’ll need to scan the market to see how these offerings compare and ensure any discounts or annual fee waivers being offered outweigh the broader fees associated with the packaged home loan.

Pros and cons of a packaged home loan

Pros:

• Discounted interest rates
• Potential discounts on other products and services
• Access to cost-saving features like an offset account
• Convenience of having all financial services with one institution
  

Cons:

• Large annual fees are common
• Discounted rate may not outweigh other costs
• Bundled services may not be the most competitive on the market (or you may not actually need/use them)
  

To assess the full scope of home loan offers on the market, head to Mozo’s home loan comparison page.

*Based on the home loan offerings in Mozo’s database for owner occupiers paying principal and interest on loans of $400,000 with an 80% LVR. Correct at the time of writing (August 20, 2020).