Beware the teaser interest rate
PRESS RELEASE Brisbane, Australia (August 14, 2014)
Eager borrowers should choose their home loan by the comparison interest rate and not be fooled by bargain rates which could cost them more than $100,000 in extra interest, a leading mortgage lender has warned.
“There is mounting hysteria about interest rates with a three in front, which is really downplaying the importance of the comparison rate,” said Kim Cannon, Managing Director of Firstmac, the financial powerhouse behind loans.com.au.
“One credit union is offering a fixed interest rate of 3.95 percent per annum, which sounds too good to be true, and it is. The comparison rate is 5.05 percent.”
Every additional 0.25 percent in interest is worth about $73 a month in higher repayments for a $350,000 home loan. That adds up to an extra $875 each year and potentially more than $26,000 over a 30-year loan term for this loan size.
“So if the difference in the interest rate is more like 1.1 percent, that is about $114,400 in extra interest over the life of the loan,” Mr Cannon said.
People shopping for a home loan needed to be alert to what Mr Cannon described as nothing more than tricky marketing by lenders.
“The message is simple; ignore the teaser rate because that’s not what you will pay,” he said.
“The true cost of the loan is what the comparison rate will tell you. Over the life of your loan this is likely to add up to many thousands of dollars.”
The Dream Home Loan from loans.com.au offers a variable interest rate of 4.54 percent p.a with a comparison rate of 4.56 percent p.a.
It is the winner of the Best Value Variable Home Loan and Best Value Full Feature Variable Home Loan categories by online comparison site Mozo.
Loans.com.au is no stranger to finance industry accolades, having held the Canstar Five-Star Rating for Outstanding Value since September 2011 and receiving the Money magazine Best of the Best Cheapest Home Loan award for 2014.
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