Putting All Your Loans In The One Basket
Sydney Morning Herald
Wednesday November 24, 1993
There seems to be no limit to the number of home loan products that banks can dream up. Following on from capped rate, fixed rate and home equity loans, two major banks are promoting "consolidated" loans that let you roll your home loan and personal loans into one package, all at a home loan interest rate.
The Commonwealth Bank led the charge earlier this month with a major advertising campaign. The Commonwealth's variable and capped rate home loan facilities now can be extended to finance personal (not business) needs such as a new car, a holiday or home renovations.
Existing Commonwealth customers simply can roll their home and personal loans into one. And new customers can refinance all their loans under the one roof.
You need 20 per cent equity in your home to qualify for the package deal. And you are subject to the same lending rules as the bank's standard home loan customers.
One rule says that your total repayment cannot exceed 30 per cent of your gross income.
The new facility is not available on fixed rate loans. But, unlike fixed rate loans, the capped and variable rate options let you make extra repayments without any penalty. This can make a big dent in your interest bill and help you pay off your loan a lot sooner.
Ms Jacqui Kirkby, the Commonwealth's chief manager personal market, says the Reserve Bank's changes to capital adequacy guidelines mean banks can afford to offer personal loans at the same interest rate as home loans, with residential property used as security.
Home buyers already are rushing to take up the new offer, she says, and loan applications are running at record levels.
People like the idea of a single loan repayment, Ms Kirkby says, and it also makes budgeting easier.
There is no establishment fee on the Commonwealth's standard variable home loan at the moment. But if you choose the capped rate option (capped at 6.95 per cent for 12 months) you pay an upfront fee of $500.
National Australia Bank was hot on the heels of the Commonwealth Bank with its own promotion of loan consolidation. Unlike the Commonwealth, National is offering to consolidate fixed rate home loans, as well as standard variable home loans.
You need 30 per cent equity in your home before you can take up the NAB package offer.
And you will pay an establishment fee of between $400 and $600 when you roll your personal loans into your home loan.
Consolidating your home and personal loans can cut your total repayments in a big way. But rather than taking the savings as extra cash, NAB suggests you use them to pay off your loan sooner. But remember, you cannot make extra repayments on a fixed rate loan without being hit with a big penalty.
NAB gives the example of a couple who took out a variable rate National Tailored Home Loan of $80,000 five years ago. They now owe about $65,000 on the loan and their home is valued at $140,000.
They also have a $10,000 variable rate home equity loan at 10.75 per cent and a $15,000 car loan (from another lender) at a fixed rate of 15 per cent for five years. The total repayment on the three loans is $1,200 a month.
By packaging all their loans into one National Tailored Home Loan at 8.75 per cent, they can cut their total repayment to $865 a month.
This means the couple's loan will be repaid in less than 15 years. But if they decide to keep their repayment at $1,200 a month, they can pay off their loan in less than nine years.
If you would rather keep your home loan and personal loans separate, NAB offers another option. You can combine all your personal borrowings into a National Tailored Personal Loan, separate from the home loan, and still pay the variable home loan interest rate of 8.75 per cent. The establishment fee on a personal loan is between $75 and $100.
© 1993 Sydney Morning Herald