Cheap home loan packages

9 May 2004

Home-loan borrowers can cut as much as half a percentage point off their interest rate, even though there has been no change in the official rate.

The big-four banks offer packages that can save borrowers thousands of dollars in interest over the term of a loan.

Major lenders will cut standard variable rates from 7.07 per cent for eligible borrowers.

The minimum requirement is a loan of $150,000. Other conditions can include using a lender's credit card, opening a transaction account, above-average earnings and paying an annual fee.

A package can also include fee-free banking and discounts on other products such as personal loans, margin loans and insurance. Conditions between the majors vary, so borrowers who don't qualify for one bank's package may satisfy the requirements of another.

Stiff competition among lenders has encouraged the big banks to make packages more accessible to the average borrower, according to Denis Orrock, general manager of financial information provider Infochoice.com.au.

He says borrowers could usually switch to a package with an existing lender if they met the conditions, or could re-finance with another. Re-financing with a new lender may incur exit penalties or fees, however.

Mr Orrock says such packages used to be reserved for high-income professionals valued by lenders for their business and status.

He points out that banks don't go out of their way to inform customers of what their packages offer.

"Their packages are on the Internet, but it's usually up to the customer to do the legwork," he says.

"It's up to the borrower to ask a branch manager what's the best available deal for them. The banks are not going to cut up to half a percentage point off a home loan for nothing. The banks don't go out of their way to tell you."

Mr Orrock says most banks and non-bank lenders don't offer discounts on fixed-rate loans, but discounts may apply on the variable portion of some split loans.

He says borrowers can save almost $19,000 in interest on a $200,000 loan over 25 years if the rate is reduced from 7.07 per cent to 6.57 per cent.

A cut of half a percentage point will reduce these monthly repayments by $63.32.

But there's more.

Borrowers can save more than $25,000 in interest if the monthly saving of $63.32 keeps going towards the loan at the lower interest rate.

As a bonus, they will reduce the term of the loan by two years and six months.

The ANZ requires borrowers to use its gold credit card, open a transaction account and pay an annual fee of $295 to qualify for a discount of 0.5 per cent off its standard variable rate on loans between $150,000 and $249,999.

It bank will discount the variable interest rate by 0.6 per cent on loans of more than $250,000.

"There are good deals for people looking to consolidate their banking, which amount to significant savings on home loan interest," ANZ spokesman Paul Edwards says.

Westpac customers pay an annual fee of $300 for a rate discount of 0.4 per cent on loans between $150,000 and $249,999. Bigger loans attract rate discounts as high as 0.6 per cent.

But customers aren't required to bank with Westpac to qualify for the package, according to spokeswoman Julia Quinn.

"The benefit of our premier advantage package is it can put all banking in one place, and that can mean hefty savings on other products for our customers," she says.

The National Australia Bank requires customers to earn at least $75,000 a year or work in an "eligible profession" such as medicine, law or teaching to qualify for a discount of 0.5 per cent on loans above $150,000. There's an annual fee of $375.

NAB spokesman Richard Peters says: "For those who qualify, our choice home loan package offers a range of discounts on other NAB products, including transaction accounts, credit cards and insurance."

To qualify for a Commonwealth Bank package, customers must have $150,000 in holdings, which can be the sum of all deposits, loans and investments.

The bank doesn't charge its standard $600 establishment fee or $8 monthly fee on its package, which offers a 0.4 per cent discount off its standard variable rate on loans between $150,000 and $250,000.

The more holdings, the bigger the discount - up to 0.7 per cent off the variable rate - but the package has an annual fee of $495.

By Anthony Black.

Reproduced from The Australian newspaper, 9 May 2004.