Home Loans Comparison Rate
What is a Home Loan Comparison Rate?
Can understanding what a comparison rate tells me help to get me the right loan?
Yes it can. When considering your home loan options it is important to remember that what you see, is not always what you get. Most people now understand that the advertised bank interest rate is generally discounted by 0.70% to 1.00% off the published Standard Variable Rate (SVR). For example, if the current advertised rate for an SVR loan is 6.80%, you will likely end up with an interest rate of around 6.00% – 6.20%.
This sounds good but how do you really know how much a loan is costing you over the long term?
The legislation protecting customers requires a lender to provide a Key Fact Sheet and comparison rate for all standard loans. This information is available to you free of charge and should be considered before entering into a home loan with anyone.
A Key Facts Sheet is a one page summary of the loan which includes information on the:
- loan amount
- interest rate
- comparison rate
- monthly repayments
- approximately how much interest you will have repay over the life of the loan
This information will assist you in comparing the cost and suitability of one loan against another loan.
What is a comparison rate?
In addition to interest, lenders may also charge you fees over the life of the loan. The comparison rate takes into account the estimated interest that you will pay, plus any fees incurred over the life of the loan which tells you the "true" interest rate. It allows you to compare "apples with apples".
Please keep in mind it does not reflect all fees/costs. As a general rule, a comparison rate will include the establishment fee and any ongoing monthly fees, however, it will not include transaction costs, e.g. if you are charged a redraw fee every time you redraw on the loan. The comparison rate is likely to be higher than the advertised rate. It is useful in comparing the effect of fees on a home loan over the long term but must be looked at in conjunction with the loan transactions costs.
When considering your home loan options we recommend you should:
- Start by considering the product features.
- Compare home loans on a comparison rate level - not the "head line" rate.
- Take a long term view on managing your mortgage.
WealthMaker Financial Services offer a range of finance products from most Australian lenders. We can help you to find the most suitable and competitive product. WealthMaker have also developed the Aspire product that allows you to accumulate wealth while paying off your mortgage. Find out more by clicking on the Contact button above or calling us on 1800 277 473.