When you're selecting the right home loan for your needs, a home loan comparison rate is a valuable source of information, helping you make a balanced and informed financial decision.
What is the home loan comparison rate?
Your lender is required to disclose the comparison rate so you can directly compare exactly how much your loan will cost you over the long term, in both interest and fees, depending on which loan you select. This gives you a much clearer view of how much your property will cost you in the long term than simply comparing a single sample monthly repayment.
“Often people think a comparable rate is comparing other lender’s interest rates in the market, but it’s actually the same lender’s interest rate, but with all the fees and charges included.”
The hidden cost of low interest rates
Some home buyers are driven by the interest rate and are locking themselves into historically low interest rates, without understanding the hidden associated costs of high fees. While you may be tempted by a seemingly low advertised interest rate, a glossy advertisement won't reveal all the additional fees and charges. Yet, when you examine the comparison rate, you can see exactly how much the loan will cost you over the long term, including fees – and the interest rate that seems higher at first glance can actually be a more economical option in the long term.
Difference between interest rate and home loan comparison rate
This essential information can save you thousands of dollars over the course of your home loan. Yet too many Australians are unaware of the financial benefits of consulting the comparison rate before making their decision.
As a mortgage broker, we help you interpret the figures so you can make an informed comparison and assess whether your low interest rate is actually too good to be true once the fees are included in your loan repayments. When you consult the experts, you can find a home loan that will fit your financial plan, so you actually have more money to invest in your home, without diverting it into hidden fees and interest.
Invest in property, not in fees
Yet too many Australians are taking out home loans without understanding this essential cost-saving strategy. A recent survey of more than 1,000 Australians aged 25 to 49 found that 28% of respondents didn't know the meaning of the term “comparison rate” and a total of 43% of respondents didn't understand the significance of the information provided by the comparison rate.
Director of Mint Equity, Zac Peteh said “Finance isn’t front of mind for everyone, so I’m not surprised comparison rates are misunderstood. Often people think a comparable rate is comparing other lender’s interest rates in the market, but it’s actually the same lender’s interest rate, but with all the fees and charges included.”
Half the respondents currently hold a mortgage, with 47% of these mortgage holders saying that they were planning to switch to a fixed rate in the future. The survey also found that 39% of non-mortgage holders believed they could be priced out of the market unless property prices drop or stabilise, while 33% of non-mortgage holders believed they would never be able to afford their own property. However, with the right interest loan your dream property could suddenly become more affordable – the key is to understand how to use the home loan comparison rate to ensure that your hard-earned money is going into your property, rather than paying off unnecessary fees.