Following the lead of the telecommunications industry, bundling is rapidly becoming the product du jour in the Australian home lending space. As the name implies, bundling refers to a suite of products , most commonly a mortgage loan, credit card and transaction account, offered as a single package.
At first this type of product was the dominion of the major banks which targeted high net worth clients with their so called “professional packages”. However with many smaller players joining the party and intense competition for new lending, a smorgasbord of bundled products has become available. No longer the just the province of the wealthy, "mum and dad" type borrowers can now enjoy the savings that come with a combined financial products.
The packages currently on the market can be split into two categories - full packages and partial packages. Full packages aim to provide the client with a total financial solution and include numerous features on top of a basic loan and credit card such as discounts across a suite of insurance products, bonus interest on term deposits and discounted personal loans.
One of the more sophisticated examples is Westpac's Premier Advantage Package which has all of these features plus a cash bonus on BT Super for Life, discounted margin loans and free access to investment research. On the other hand, the partial packages are a little more basic, containing a loan and just one or two other products e.g. a credit card, discounted home and contents insurance. This is best seen through the Suncorp My Home Package.
Whilst there is a wide range of options for borrowers to choose from all of the packages share some common elements. Most importantly a discounted interest rate is offered on the home loan. Additionally regular fees and charges on the other components and waived or discounted in favour of one annual fee (around $350pa on average).
From the banks point of view these "bells and whistles" not only attract clientele but ensnare them into a wider range of products and services. This makes it inconvenient (though not impossible) for clients to leave. Essentially the banks aim to capture all of clients financial business and keep them there for longer. Borrowers, on the other hand, are enticed by waivers on credit card fees, discounts on various types of insurance and the convenience of having everything under the same roof. However the main hook is that the packages always offer an interest rate discount - usually a haircut of between 0.4% to 0.8% off the advertised standard variable rate. As a general rule the larger the amount borrowed the deeper the discount and the greater the chance of negotiating an even better deal.
On the face of it, bundled packages appear very attractive but they are not without pitfalls. Whilst they are convenient they effectively tie clients to the one provider and this may prevent them from taking advantage of cheaper offers. Depending on one’s personal circumstances they may be better off by shopping around to get the cheapest interest rate deal.
We decided to do some myth busting by taking a closer look at a selection of packages and comparing them with some "plain vanilla" options. For simplicity we have based all of the following scenarios on a 25 year principal and interest loan paid fortnightly.
ANZ Breakfree Package:
We'll start with one of the best publicised and fanciest packages around. It is a complete financial solution for the sophisticated investor and includes a REPHRASE cornucopia of benefits on top of the standard fare. Namely interest and fee discounts on personal loans, discounted mortgage, car and health insurance, discounted investments loan and reduced fees on international transactions.
Basics:
- Discount on Standard Variable Rate: 0.7%
- Effective Current Rate: 5.63% p.a.
- Annual Fee: $375
Loan Cost
| Loan Value | Fortnightly Payments | Total Repayments. | Fees Estimate |
| $300,000.00 | $948.24 | $316,357.61 | $9,375.00 |
| $500,000.00 | $1,580.40 | $527,262.68 | $9,375.00 |
NAB Choice Package on Tailored Home Loan Variable Rate
Next up is a simpler package targeted at first home buyers and "mum and dad" borrowers. Highlights of this deal include no annual fees on selected credit cards, a receive 12 months pay for 11 offer on NAB Home Essentials Insurance and NAB Residential Investor Insurance and an interest bonus of 0.25% on standard term deposits.
Basics
- Discount on Standard Variable Rate: 0.7% for loans over $250,000.
- Effective Rate: 6.13% p.a.
- Annual Fee: $96
| Loan Value | Fortnightly Payments | Total Repayments. | Fees Estimate |
| $300,000.00 | $943.89 | $313,531.12 | $9,875.00 |
| $500,000.00 | $1,573.16 | $522,551.87 | $9,875.00 |
Loan Cost
Suncorp My Home Package
Now we have a look at an offering from a smaller bank. Suncorp's My Home Package is fairly straight forward and aimed at middle of the road borrowers. Its benefits include zero annual fees on Standard or Clear Option credit cards, Everyday Options account with unlimited transactions, discounts on GIO Home Insurance, no fees on personal loans and a complimentary session with a financial planner.
Basics
- Discount of Standard Variable Rate: 0.7% on loans over $250,000
- Effective Rate: 5.59% p.a.
Loan Cost
| Loan Value | Fortnightly Payments | Total Repayments. | Fees Estimate |
| $300,000.00 | $954.35 | $320,324.67 | $7,500.00 |
| $500,000.00 | $1,590.58 | $533,874.45 | $7,500.00 |
The verdict?
NAB Choice package is the narrow winner from this selection offering interest savings of $2,826 over the ANZ Breakfree Package on a $300,000 loan and $4,710 on a $500,000 loan. However for a high net worth individual with an interest in share investments and a need for international transactions the benefits of the ANZ Breakfree package may well offset this small interest saving.
We now turn our attention to some “plain vanilla products” to see if packages really do offer significant savings.
AMP Professional Package
Despite the name this is a basic product. It features an offset account and redraw facility but lacks the “bells and whistles” of the bundles we’ve looked at.
Basics
- Interest rate: Variable rate of 5.65% p.a.
- Annual Fee: $349
Loan Cost
| Loan Value | Fortnightly Payments | Total Repayments. | Fees Estimate |
| $300,000.00 | $940.42 | $311,274.23 | $8,725.00 |
| $500,000.00 | $1,567.37 | $518,790.00 | $8,725.00 |
This product is slightly cheaper again with interest savings over the NAB Choice Package of $2,256.89 and $3,761.87 on loans of $300,000 and $500,000 respectively. Again the discounts on credit cards, insurance etc, not to mention bonus interest on savings go along way towards offsetting this minor differential.
Bankwest Online Home Loan
We’ve saved the best for last. Bank West is currently running a special deal for online customers. The product is strictly “no frills” but its standard variable interest rate of is one of the cheapest around. On top of this there are no establishment or ongoing service fees.
Basics
- Interest Rate: 5.13% p.a.
- Fees: $0
Loan Cost
| Loan Value | Fortnightly Payments | Total Repayments. | Fees Estimate |
| $300,000.00 | $916.28 | $295,583.93 | $0.00 |
| $500,000.00 | $1,527.00 | $492,640.00 | $0.00 |
This delivers a whopping interest savings of $17,947.19 on a $300,000 loan and $29,911.87 on a $500,000 loan. Teamed with a BankWest Breeze Master Card, a low fee, low interest product a borrower can glean much better value than with the Big Four Packages.
Despite their glitz and glamour bundled productions are not always the best choice. The interest rate haircut gives the product an advantage over the Big Fours stand alone mortgages but it still in the consumer’s best interest to shop around. Intense competition amongst lenders means that special deals such as the Bankwest’s Online Home Loan can save the customer tens of thousands of dollars in interest which more than compensates for the lack of bells and whistles.
Such deals are a fantastic option for young first home buyers or low to middle income families.
On the flip side wealthier clients with a large asset base can extract much more value from packages like the ANZ Breakfree or Westpac Premier Advantage. Features such as bonus interest on savings, discounts on margin loans and foreign transactions if used frequently could well be worthwhile.
