Anthony Keane | News Limited | Janaury 15, 2012
Discount interest rates on home loan packages are getting better for borrowers as major lenders battle for new mortgage business.
The best package discounts, which are generally available to people with mortgages of more than $250,000, have jumped to 1 per cent or more below the standard variable rate in the past 12 months, up from 0.85 per cent a year ago, financial research group Canstar says.
But many borrowers may be missing out on thousands of dollars of interest savings simply because they haven’t reviewed their home loan or spoken with their lender.
Canstar says the best part about packages is that the discount is for the life of the loan, rather than just a few months as we see with promotional and introductory interest rate offers.
It says package banking is not free and can attract an annual fee of up to $400 but, for many people, the interest savings easily outweigh the cost. For example, the annual interest saving on a typical $300,000 home loan is $1600 to $2300.
Westpac and NAB’s packages offer a 0.7 per cent discount, Canstar says. The Commonwealth Bank offers 0.75 or 0.8 per cent depending on loan size, while ANZ is the leader with a 0.9 or 1 per cent discount. Regional banks, building societies and credit unions also offer packages.
“Almost everybody should be on a home loan option other than the standard variable rate,” says Steven Mickenbecker, Canstar’s head of research, product and strategy.
While there are no official figures on how many Australians have packages and how many people remain on standard variable rates, Mickenbecker says most lenders will offer packages for new customers and will be happy to put existing customers on packages if asked.
“It’s competition among lenders, and because there’s a $250,000 minimum, it’s really a way that the banks are able to attract that bigger loan rather than give an across-the-board interest rate cut to less-profitable loans,” Mickenbecker says. Packages also help lenders win credit card and transaction account business, he says.
Real estate investors can get bigger benefits because the package rates can apply to all of their loans, which means someone with three $300,000 mortgages can be up to $7000 better off each year by using a package.
Kennedy & Co Chartered Accountants partner Dom Cosentino says his firm often informs clients that packaging can lead to lower rates and the waiver of credit card fees and other fees.
“The bottom line is that if the borrower can benefit from reduced rates and fees, then do it,” he says.
But don’t seek a package if your numbers don’t stack up.
Canstar says someone borrowing a smaller amount such as $100,000 might not make any savings after the fee is taken into account.
Financial comparison website infochoice.com.au says borrowers should compare what a package offers with what is offered by the wide range of other financial services groups in Australia.
“Packages are good for some but not for everybody,” Infochoice spokesman Dirk Hofman says.
“It depends on your level of borrowing and your needs.
“At the end of the day, the biggest saving you will make is on the home loan rate, but that needs to offset the annual fee. There’s plenty of choice out there.”