Home Loan Comparison Rate - What does it stand for?

Owning your own home is an important aspiration for many Australians.

Inevitably a home loan is an integral part of this aspiration becoming a reality. Purchasing real estate is an exciting but at the same time serious financial commitment.

Home loans are complicated and there are many different home loan products and features on the market that need to be carefully considered before the right one can be decided upon.  

To make it a little easier, the National Credit Code requires each lending institution to provide a comparison rate.  John Kennedy, mortgage broker, explains the comparison rate as a percentage rate that combines the interest rate and most fees associated with that home loan product.

The calculations of the comparison rate is not straight forward and it takes into account several factors including

  • the amount of the loan
  • the interest rate
  • the term of the loan
  • frequency of repayments
  • fees and charges connected with the loan

Not all the home loan charges are included so the comparison rate should only ever be considered a guide by potential borrowers.  Most advertised comparison rates are comparing $150 000 over 25 years.

If we have a look at the table below, we can see in the big picture home loan 2 appears a better choice for your budget even though it has a higher interest rate.

 

Interest rate

Fees and Charges

Comparison Rate

Home loan 1

4.00%

0.45%

4.45%

Home loan 2

4.25%

0.1%

4.35%

 

On average, our clients in 2017 are looking at a home loans closer to $280K and so the advertised comparison rates may not be as meaningful for these higher loan amounts.

However it is important to remember that costs are not the only factor to consider.

Home loan features are equally important. 

The way you use your money every day will dictate which features will be of most benefit to you.

Again there are many choice from many different banks and other lending institutions.

You can learn more about home loan fees and the jargon surrounding them on our previous blog.

To save you time come in for a chat with one of our expert mortgage brokers, about the way you save and spend.  We will advise on all the fees associated with a number of loans so they can have a full understanding of the true cost, as well as the features that would suit your financial goals.

At Mortgage Choice in Mudgeeraba, we will help you discover the right loan structure and rate, and our service is at no charge to you. 

We are conveniently located 5 minutes west of Robina Town Centre, central Gold Coast.

 

Posted in: Home loans

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