What is Comparison rate and how is it different from the Advertised rate?
If you’ve got a home loan, you may already be familiar with these terms.
However, if you are new to home loans, then this is something that you need to be aware of as it plays a vital role with regards to your situation.
With most borrowers, they focus on the advertised interest rate by the lenders rather than the comparison rate which lenders are legally obliged to publish with their advertised rates. This is the reason why you might see two columns on home loan rate sheets, advertised rate as well as the comparison rate. You would not pay attention to this rate until and unless someone explains it to you.
The three key terms we will discuss in this post are:
- What is Comparison rate?
- What is the difference between the Advertised rate and the Comparison rate?
- What can be done to avoid paying a higher interest rate?
Let’s discuss each line item one by one.
1. What is Comparison rate?
This is a rate where the lender gives you the exact rate with all of their applicable charges included in your home loan product over the life of your loan.
What it means is that this rate includes everything such as establishment fee, application fee, annual fee or account keeping fee and any other home application related fees to identify your actual repayment by the lenders.
In other words, comparison rate is the rate you are to pay while making the repayments and this is the rate you need to look at while comparing the rate among lenders to decide which lender to go with. It will not include conditions such as whether you have to pay an early termination fee and or a redraw fee on your home loan, as well as the benefits you will be receiving such as offset accounts and fee waivers.
It is calculated based on the minimum loan amount of $150K and the maximum loan term of 25 years.
2. What is the difference between Advertised rate and the Comparison rate?
The Advertised rate is the pure rate to calculate the interest over the agreed loan term where your total loan term may vary from between 30 and 40 years depending on the lender you go with excluding the applicable fees on your home loan.
You do have options such as choosing a rate on a fixed term home loan from between 1 to 5 years with the remaining loan term redirected back to a variable interest rate up to the maximum loan term or agreed total loan term.
You also have an opportunity to compare the costs, particularly fee waivers such as establishment fees, account keeping or annual fees as currently most lenders, do have such fees, but they are waving them because of higher competition.
3. What can be done to not to pay a higher interest rate?
If you get in touch with your mortgage broker, they will assist you to clarify both the advertised interest rate and the comparison rate and which lenders are offering the best rate not just the advertised but also the comparison rate.
With some customers, they are happy to stay with their preferred lender even though their comparison rate is higher along with the advertised interest rate, but this is your choice, if you are happy with your chosen lender because of the convenience.
However, if you’re not happy, we’re here to assist, so please get in touch and let’s talk about how we can help you get a better home loan that is more suited to your current situation.
BTW we have a question for you. If you could have a private conversation with one of our team, what two questions would you like to ask?
Just let us know via this link.
P.S. We’re really serious about this – go ahead, click on the link now and tell us your question. What do you need help with?