A basic home loan is a home loan which is light on features but offers a low interest rate and less mortgage fees. This type of “No Frills” home loan is useful for borrowers who seek lower regular repayments and ongoing costs. The borrower’s requirements may be simple and met for example by just having a redraw facility available and no offset account. This loan is useful for first home buyers or anyone who doesn’t want to pay for features they won’t use.
A package home loan involves combining the home loan and other commonly used financial products, for example an offset account and/or a credit card, into one bundle. The loan is at a lower discounted interest rate compared to the standard variable or standard fixed rate. The package usually includes a mortgage offset transaction saving account in addition to redraw being available on variable rate loans. This type of home loan is useful for borrowers who believe their savings pattern or cash flow will be assist in reducing their monthly loan interest cost and ultimately pay the loan off faster.
While the basic loan is commonly a variable interest rate loan a combination of variable and fixed interest rates is commonly available within a package home loan product. The features and restrictions of the different rate types should be taken into consideration when selecting a home loan.
A package loan will usually have an annual fee payable to allow the continuation of the package benefits. From time to time a bank may have a special which offers a discounted or a waived package fee.
For a one off single loan on a single property – yes it is usually cheaper as the interest rate is usually competitive and there are often low establishment costs and normally no ongoing fees. Where as $300 to $400 per annum is typical for most packaged loans.
If you are in an investment acquisition phase or already have multiple properties and/or multiple loan accounts eg: home loan and investments ( eg: shares ) loan. Also if you are high income earner as an offset account can be very useful and save money.
Redraw is money in/out of your loan account. Offset is a separate account linked to the loan account. In some circumstances an unlimited free redraw can be as useful as an offset. However there are some specific situations where only an offset can offer significant taxation benefits.
