From The Australian: EVERY bank wants to sell you a package. The idea is that if, in addition to a home loan, they can sell you transaction accounts, credit cards, insurance and multiple mortgage accounts for investments they can make more money.
And hopefully you can make more money too.
This is the thinking behind professional packages which has been extended to the latest generation of portfolio loans.
Portfolio loans are where wealth management meets packaged home loans.
Typically, for an annual fee, they are lines of credit where interest only is paid and the account can be split into a number of sub-accounts for investments or savings.
Free transaction accounts and credit cards are also typically offered as part of the deal.
The key is that they are flexible and typically their structure can be changed with little if any paperwork.
The idea is that the main owner-occupier mortgage is one account and investments in property, shares and anything else are handled through separate accounts.
This is where the market is playing catch-up with St George.
Among mortgage brokers the St George Portfolio Loan has proved to be one of the most popular packages, not because it is the cheapest but because it is the most flexible.
Carl Huybers, mortgage consultant with Mortgage Choice, says it is the product that he uses himself, although it may not be for everybody.
However, he warns: “I think in some ways the idea of portfolio packages is more of a marketing thing than a reality.”
Lindsay Rogers, an Aussie Home Loans rep, says there is a lot of interest in portfolio products.
“What I find is increased interest in that area for a particular segment of the market.
“It is not the type of loan that suits the everyday borrower.
“It is really something that appeals to somebody who has a very high asset backing and wants to go and do things without having to answer to anybody.”
Melissa Kepert, portfolio manager, investor and specialist mortgages, at St George, says that portfolio products are for people who are very financially disciplined and want flexibility.
They are for people who want to access the equity in their home for other purposes, such as property and equity investments.
The St George product Portfolio Loan was originally an Advance Bank product and was introduced in the early 1990s.
It has evolved to include up to 10 sub-accounts that cost $100 each to establish.
It is similar to Viridian from the Commonwealth Bank, which also allows up to 10 sub-accounts under one umbrella limit.
AMP also has a similar product in its Professional Package and Low Doc lines of credit, which also package transaction accounts and credit cards.
Macquarie Bank has the Macquarie Executive Options, which for an annual fee of $150 and a $300 application fee packages banking, a gold Macquarie American Express Card with a global borrowing limit and an interest-only option for 20 years.
The loan can be separated into two sub-accounts with individual statements and limits.
After settlement it allows unlimited sub-accounts.
The St George product is also available as a low-document loan, although there is an increase in application fees and interest rates.
The annual fee is $250 (compared with $200) and the establishment fee is $750 (compared with $700).
Now NAB is aggressively moving into the portfolio market, more than matching the St George product and upping the stakes.
The product is the personal introduction of CEO John Stewart, who worked with portfolio products in Britain. It builds on NAB’s existing flexi-mortgages but for $550 a year (compared with $375) allows 12 sub-accounts and is “evergreen”.
That means the facility is reviewed every year but has no fixed term. It comes with discounts on personal insurance, two free gold credit cards and transaction fee-free banking.
According to Tony Hocking, a regional manager with NAB who has been involved with the development of the product, it is aiming at the 30-something market with combined incomes of about $200,000, including income generated from other sources. While NAB will lend up to 80 per cent of the property value, Hocking says that many people may only be geared to about half the value of their property.
The bank reckons that it has a target market of 1 million people in Australia.
Hocking says the idea is to pay off bad debt (debt that isn’t tax deductible) before good debt (tax deductible).
This means channelling all income, including that from investments, into paying down the owner-occupier non-deductible home loan.
Part of this plan at NAB is to bring together personal bankers with wealth managers to offer a more complete and flexible service to clients.