By recommending home loans bundled with other finance products, brokers can help suitable clients save more than $41,000 over the 25-year life of their loan according to new research from consumer ratings agency CANSTAR.
The key savings factor in these package home loans is the discounted home loan interest rate which can vary significantly from the standard rate offered. While the average rate for a standalone loan is 4.52%, this drops to an average of 4.20% for bundled loan and finance products.
For a 25-year $350,000 home loan, this equates to just over $19,000 in interest savings, researchers from CANSTAR found. When taking the annual fee into account – the average of which is $338 per year – total savings come to more than $12,700 for the life of the loan.
These savings can be compounded with the right choice of package home loan too. The difference between the highest and lowest standard variable rates for a $350,000 package home loan is 1.22%, researchers said. This adds up to savings of more than $41,900 for the 25-year life of the loan.
“The possible savings can quickly outpace the annual fee charged for the package. The bulk of these savings come from the interest rate discount that applies for the life of the package,” said CANSTAR research manager, Mitchell Watson.
Other fee and cost waivers for credit cards, transaction accounts, insurance, etc contained within these bundles contributed further to savings, he added.
Finding a suitable package
When deciding whether a package loan was suitable for an individual client, it was important for brokers to assess whether the features offered outweighed the overall costs, CANSTAR spokesperson Belinda Williamson told Australian Broker
“If a client doesn’t require a whole suit of new products and prefers their existing products then they may be paying an annual fee for products they may never fully utilise.
“Despite not having all the bells and whistles, a more basic home loan may prove to be a better alternative as it may be possible to negotiate a rate discount regardless of the loan type, or you may be able to find a more affordable loan that has only the features your customer actually needs.”
Furthermore, the discounts offered in these bundled home loans are dependent on the client’s loan amount, Williamson said, meaning those borrowing low amounts may not be able to receive a substantial discount.
Crunching the numbers
To help clients do the sums and make a like-for-like comparison of the package loan with their everyday banking products, brokers can ask their clients to bring in an outline of their existing products such as home loans, transaction accounts, savings accounts, insurance, etc, she said.
“Be sure to factor in the annual fee for the package home loan and highlight any other fee waivers or discounts being offered. This process will help you tailor the calculations specifically to your client’s situation and provide a better understanding of the numbers.”
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