When taking out a home loan, it is crucial to know what a comparison rate is because it is the very tool that lets you identify the actual cost of your loan. Sadly comparison rates remain among the most frequently misunderstood factors by borrowers. Although lenders are obliged by law to include a comparison rate when they advertise a loan interest rate, in reality confusion continues to surround comparison rates and the end result is the client not getting the most cost-effective deal they should be getting.
The comparison rate basically includes both the interest rate and miscellaneous fees and charges pertinent to a loan combined into a single percentage figure.
In most cases borrowers tend to only look at the different interest rates offered by competiting banks and financial institutions as a means to draw comparisons on which home loan deal is best for them. While this is not a bad way to do things, it suffers from the fundamental disadvantage of not having a means to know what the hidden costs might be. Ideally, you will want to know with precision about establishment fees, approval fees and any other up-front or on-going fees that make up the overall amount you end up paying your lender.
Using the comparison rate is by far the most formidable method for determining the best deal suited to your circumstances because it comprises of the loan amount, the term of the loan, the frequency of repayments, the interest rate and all other hidden fees and costs associated with the loan. In the end you may find that your interest may be 6.50% while the comparison rate may be 7.50%, this may include ongoing monthly fee’s and application fees which have been factored into comparison rate.
Having said that, one must still take a look at the entire contents of their home loan including all the key features of the package on offer. When you are considering switching your home loan refinance or new purchase you can use SwitchMyLoan.com.au and compare your home loan against 15 lenders using the sort by comparison rate feature.
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