The Facts About Comparison Rates
Updated: Nov 1, 2019
Not all home loans are made equal. Some have no ongoing fees, some have big upfront fees and others have ongoing monthly fees. This has quite an effect on the actual amount of interest you will pay over the life of the loan. How do you go about making an apples for apples comparison when looking for a new home loan?
Enter Comparison Rates. The government mandates that whenever an interest rate is advertised then it needs to be accompanies by a comparison rate. The comparison rate is the effective rate you receive on the loan by taking the fees and charges into account. The comparison rate is typically based on a loan size of $150,000 and a loan term of 25 years. This provides you with a way to compare home loan offers.
While comparison rates are a good start to helping you compare rates, they have some flaws:
Most loans are a lot bigger than $150,000. In fact, new home loans in Sydney average over $600,000. This makes quite a big difference to the comparison rate, especially with loans with upfront fees since the real rate will be smaller than the comparison rate.
Most new loans are taken over the maximum term of 30 years. This extra 5 years will also affect the real rate, especially with loans that have monthly fees.
So how are you expected to make an accurate comparison? It is tough. You either need a fairly good background in mathematics or you need the help of a mortgage broker. The good news is that our systems calculate a true rate for you when comparing loans - it will take into account the rates, fees, term and actual amount borrowed.
Contact us if you need help with comparing rates and navigating the home loan minefield.