Why packaged home loan products are no longer worth it

Hi Nicole,

We have been reading and researching about taking on a mortgage for the first time and have found your articles really helpful. We've come across a product from CBA and want to know your thoughts. It's CBA's MAV (Mortgage Advantage) package with a variable interest rate, repaying principal and interest. There's the ability to pay it off quickly or make additional payments and a 100 per cent offset available. The definition of "variable" says the rate is up and down; repayment will go up when the rate goes up. The annual fee is $395 a year. We wanted to know your thoughts if this is a good offset facility? And more importantly how bad can CBA choose to increase rates from time to time (despite rumours of hikes in 2018)

- Steve and Steph

Congrats for getting yourself in a position to buy property, Steve and Steph - no doubt it's been a hard slog.

Firstly, I'll venture that no big four bank will make any maverick rate moves soon, what with the banking royal commission about to kick off. And this offset account is one of the many good ones.

But I'm not sure why you want a packaged product. Mortgage brokers - are you using one? - love to flog packages for these imagined "advantages":

- A "free" credit card - standalone mortgages are usually fee-free so much of the $395 annual package fee is for the privilege of using a credit card??? with an extortionate interest rate. Sure, "package" credit cards are often a fancy colour and come with some complimentary travel insurance, but you could get that for $150 or less separately.

- A transaction account - this too should be free but more importantly, like most big banks, the interest rate is sub-par.

- The ability to more easily add on another loan/s for rental properties - safer would be to take these out with a different lender to segregate your home from your investments, should you get into financial strife.

- Discounts on insurances.

Packages also come with waivers of some ultimately insignificant upfront fees and discounts off the advertised interest rate - of a disclosed 0.5 to 0.7 percentage points here (more can usually be individually negotiated). But you'll pay over-the-odds, regardless.

CBA's publicised discounted rate for a $500,000 loan is 4.62 per cent versus the cheapest standalone loan listed with mozo.com.au with a true offset account: a far better 3.59 per cent from Easy Street, which is a division of Community First Credit Union.

I've yet to come across an institution that offers best-of-breed of even two financial products, let alone this sweeping suite of them. Packages are a bank ploy to get their clutches into you for life. Which will really cost you.

Nicole Pedersen-McKinnon is a money educator and consumer advocate: themoneymentorway.com. You can write to her for help solving your money problem, or with a consumer question, at nicolehelps@fairfaxmedia.com.au.

This story Why packaged home loan products are no longer worth it first appeared on The Sydney Morning Herald.