Thursday, October 16, 2008

Discount home loans with frills

Banking packages that combine a mortgage, transaction account and credit card with the one institution are the best value on the home-lending market. Packages offer a discount to the advertised rate and the saving on the interest more than covers the package fee. The bundling of services also offers convenience.

This is the view of banking industry research group Cannex, which says institutions offering packages have made them more attractive by varying them to benefit a wider spectrum of borrowers.

Cannex says more than half of all new mortgages written by the major banks are "super sized" to packages.

Borrowers like them because they get the features of a standard variable-rate loan (and, increasingly, other types of loans) at the discounted price of a basic variable-rate loan.

Discounts are 0.4 to 0.7 percentage points, depending on the size of the loan. At one stage last year some brokers were given discretion to offer discounts of as much as 0.9 percentage points but with the general tightening in the market, those deals are now hard to find.

Assuming an advertised standard variable rate of 9.47 per cent, a $150,000 loan with a 0.4 percentage point discount will reduce interest by $500 a year. A loan of $250,000 may attract a 0.7 per cent discount and will save $1500 a year. The annual fee is between $250 and $500 but this is less than the savings from the discount.

Traditionally aimed at typical home-buyers, package banking has broadened its appeal to attract property investors and the self-employed. Investors value loan options such as interest only, line-of-credit and discounts. Those who own their own business usually need a package with a good low-doc loan.

In a report published in June, Cannex says the top variable-rate packages are Adelaide Bank's Executive Offer, Newcastle Permanent's Premium Plus Package, Commonwealth Bank's Wealth Package and AMP Banking's Select Package.

The top five fixed-rate packages were offered by Commonwealth Bank, HSBC, BankSA and St George.

When taking out a package loan, there is a requirement to take other products, usually a deposit account and a credit card. This is attractive because the annual fee is bundled into the package's annual fee.

However, if the product offered in the package does not suit, there is no obligation to use them.

The type of credit card does vary between institutions. Many will offer their standard credit card but some, such as St George, offer a platinum card.

source : http://www.smh.com.au

1 comment:

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