• Angela Dye

What is a Comparison Rate?

It pays to read the fine print on mortgage interest rates or you may bite off more than you think, says Angela Dye.

When shopping around for a home loan it is easy to be distracted by the low interest rate in bold figures that a lender has advertised in their shop window or in their television advertisements. We often overlook the fine print below stating the comparison rate of the loan.

Many people make the mistake of comparing different home loans by using the advertised rate alone, which gives consumers an incorrect idea of the cost of the loans they are comparing.

So, what is a comparison rate, and what does it mean for you and your mortgage?

Since 2003 all lenders and banks are legally required to display a comparison interest rate when advertising a loan. A comparison rate is a great way to help customers identify the true cost of a loan, and it ensures that lenders and banks do not mislead consumers into a rate that is too

good to be true.

The comparison rate includes not only the advertised interest rate but most of the fees and charges associated with that loan, such as monthly fees, annual fees, establishment fees or any ongoing costs associated with the loan. It is shown as a percentage normally in smaller print below the advertised rate.

A comparison rate does not include government fees and charges such as stamp duty or legal fees, and does not include charges that are only applicable in certain circumstances — for example, late payment fees, redraw fees and so on.

Being mindful of the comparison rate is a great way to compare the true cost of different loans, but it is not the only thing to consider when you are deciding which loan is right for you.

As well as the comparison rate, it is important for customers to consider what features they are looking for in a loan, or features they may need to achieve a particular goal. For example, do you want a redraw facility? Do you want the ability to make extra repayments without being charged a fee, or maybe you’re looking for an offset account to offset the interest charged to your loan. Whatever your desired features are, it is important to compare like for like so that you end up with a mortgage that best suits your needs.

Your home is in most cases the biggest financial purchase you will ever make, so it’s important to get the right finance for your situation.

Ask Ang about the best loan for you. Make an appointment for a chat or meeting

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