Bundling a home loan with a lender’s other services can result in significant discounts – but use the deal wisely.

Discounts on ”package” home loans have topped 1 per cent for the first time and such products have made a strong showing in Canstar Cannex’s latest mortgage survey. Nearly half the top 20 loans in Canstar’s five-star ratings report were package products.

However, an inquiry into similar packaged banking products in Britain is a reminder that the value of such offers – which generally involve an annual fee somewhere between $250 and $395 – will depend on the depth of the interest rate discount you get and to what extent you’ll use benefits such as discounted insurance and financial advice.

”Going back 24 months, a 0.7 per cent discount was considered a relatively high discount but now borrowers are able to obtain discounts up to 1.03 per cent,” says a financial analyst at Canstar Cannex, Mitchell Watson.

The discount is available on Suncorp’s My Home Package standard variable loan but only to new applicants who want to borrow more than $250,000 and who have a solid 20 per cent deposit. To qualify, they must submit a fully completed loan application by November 20.

After the discount, the comparison rate on the Suncorp loan is 6.95 per cent, which isn’t the lowest variable rate in the market but is nevertheless competitive at less than 7 per cent. Fixed-rate loans are available about the 6.5 per cent mark. However, there’s an ongoing fee of $25 a month, or $300 a year.

The benefits include a waiver of the application fee, a fee-free credit card and up to $200 off the first year’s premium if you take out a particular home and contents policy with Suncorp Insurance by the end of the year.

Bank of Melbourne, BankSA, Commonwealth Bank, Greater Building Society, HomeSide Lending, National Australia Bank and Newcastle Permanent all had packages in Canstar’s five-star ratings report (which was up to date as of September 23).

However, in Britain, a study commissioned by the Financial Times found fewer than one in 10 people used the insurance and ”free” services that came with ”packaged bank accounts” that were charging up to ????????????????300 ($478) a year in fees. Many customers had no idea what extras they were entitled to. The Financial Services Authority has announced an inquiry into such deals.

Watson says that in Australia, the value of package products depends on the overall picture: how much you’re borrowing and whether you’ll use the additional discounts or products.

”In general, packages aren’t suited to people who are borrowing small sums of money as the loan discounts aren’t always adequate enough to overcome the higher annual fee,” he says. ”But those borrowing high amounts will find the rate discount alone outweighs the annual fee.”

Canstar considers only the home loan portion of a package product when it assigns star ratings to loans. ”This provides a fair comparison against non-package home loans … but it also shows that even without the additional benefits, package products can provide outstanding value to borrowers,” Watson says.

When comparing packages, he suggests borrowers look first at the interest rate discount, then put the ”extras” in a hierarchy from most important to least important to them, focusing their comparisons on the ones they’ll actually use.

And even if you aren’t borrowing enough to qualify for a package discount, ask for the discount anyway, he says.

Key points

  • Package discounts are becoming deeper.
  • People borrowing higher amounts attract the discounts.
  • You may need a larger deposit, too.
  • Also compare fees and consider what extras you’ll use.

Posted by Lesley Parker – Domain (The Age) on 12th October, 2011