Are packages good value or ego trips?

Most home loans are provided as single products. However increasingly, professional packages are being offerd. Here the borrower typically pays a global package fee – usually around $300 per year.  For this the borrower gets a range of banking services including multiple home loan accounts and personal accounts for themselves and their partners as well as free credit cards.  This approach looks expensive compared with the normal basic variable rate home loans.

However, the ‘fringe benefits’ associated with the fee very often make it worthwhile particularly if the borrower has at least two home loan accounts. This will generally be the case if one loan is financing the home and another is financing investment.

It is often a mistake to mix these home loans up, firstly because it is simply more convenient for tax purposes for them to be separate. Secondly the interest on home loans which have financed investment is usually tax deductible and the interest on a home loan is generally not (get financial advice from your accountant for your specific circumstances).  This means it often makes tax sense to pay off your own home loan as fast as possible whilst allowing your deductible home loans to be paid off more slowly.  This is difficult to justify to the tax office without formal separation and accounting for the two home loans.

So as a general rule if you don’t need to discriminate between investment and a home loan a simpler package might save you money.  If you need to do so the global fee you’d pay for a packaged suite of loans under a professional package, might make really good sense for you.

Once a borrower has decided on a packaged home loan, the advantages are that a multitude of home loan accounts can serve various sophisticated purposes.  After having paid off a substantial portion of his or her home loan a borrower might want to increase the limit by the same amount on their investment loan or in a third investment loan account.  A packaged product will often allow you to do this without new application fees, and account keeping fees though sometimes a ‘re-packaging’ fee will apply.  You wouldn’t expect the lenders not to pop a fee in there would you!.  But its a lower fee than most of the alternatives.

Please note: these comments are general ones.  You should receive professional accountancy and finance advice about your own circumstances before assuming that the principles set out here apply to you.

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