​What home loan comparison rates mean

​What home loan comparison rates mean

Last week I was fortunate to be able to talk to some of the hundreds of people who stopped by the loans.com.au stand at the Sydney Home Buyer and Property Investors Show . These property enthusiasts were either entering the property market for the first time or looking to purchase investment properties and they were doing the smart thing by getting as much information as possible before making a decision. While at the show I had the opportunity to hear their stories and help demystify the different home loan products so they could compare them.

When you come from a mortgage industry background, you are usually well versed in the jargon that surrounds the mortgages and home loans. However I think that sometimes banks and loan providers are guilty of not explaining the jargon well enough so that people can make the right decision about their home loan. Many people at the property show were seeking general information about home loans but one of the most common question we were asked is ‘what is a comparison rate?

This troubles me because the comparison rate is one of the most important things you should look at when deciding on a home loan or mortgage.

By law the Australian government makes all lenders, banks and non-banks, advertise a comparison rate whenever we are advertising home loan rates. It’s a great thing that we have to do this because it gives the Australian’s the ability to really compare different home loans across different companies equally.

A comparison rate is the true cost of a home loan. Using a formula it takes the interest payments, based on the advertised interest rate, and includes any additional fees and charges that come with the loan. For example, if a home loan provider has a standard variable rate listed and their comparison rate is a lot higher, this means you should look at any fees and charges on the loan. The most common reasons that a comparison rate can be a lot higher than the actual rate the lender is advertising is 1)Application Fees and 2) Annual Fees.

A good lender will have a comprehensive list all of their fees and charges up on their website. If you can see that the lender has a high comparison rate, you should definitely ask them what other costs are associated with the home loan.

At the time I am writing this, our Dream Loan Express loan has a standard variable rate of 6.69% and a comparison rate of 6.70%. Some of our competitors have a similar variable rate but their comparison rate is a lot higher. The main reason is because of either an application fee or an annual fee or both. This is how they get you to pay for the cheap advertised rate.

If you have any questions, please contact us or call us on 13 10 90.


By Marie Mortimer. You can follow Marie on Google+

Image credit: Mcgoo84

 
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