What is a Comparison Rate? Why is It Important?

A comparison rate for a home loan is a number expressed as a percentage that helps you to understand the full cost of your credit per year. The comparison rate that’s included for each credit comprises more than just interest fees. You’ll also be able to see things like the required payments you’ll make each month, and the ongoing fees you may need to pay.

In simple terms, a home loan comparison rate shows you the true cost of your loan. Sometimes referred to as an Annual Percentage Rate, or APR, it can also make it easier to compare your loan options against other offerings in the marketplace.

What’s Included in a Comparison Rate?

The comparison rate on your home loan will take various expenses into account. Under the regulations of the National Consumer Credit Protection, comparison rates usually calculate the following:

  • A loan term of 25 years
  • Your repayment frequency
  • Interest rates
  • Monthly account fee
  • Annual fee
  • Valuation fees
  • Mortgage documentation fees
  • Settlement fees

Since 2003, the lenders in Australia have been required by law to show their borrowers the comparison rate available for their products. The aim is to ensure that you can make the most accurate comparisons when considering different loans, and potentially get a better deal as a result. Additionally, forcing lenders to show their comparison rates also means that these lenders are held accountable for unreasonably high charges.

How to Use Comparison Fees

When you’re looking for the ideal offer for your home loan, a comparison rate can be used as a guide when you’re searching for like-for-like products. The average house price in Australia can vary, and most comparison rates are given according to what you might pay for a loan of $150,000. Additionally, most home loans can last for longer than 25 years, which means that your comparison rate might not help much if you’re looking for a term of 35 years.

The comparison rate that a lender gives you might not calculate every possible cost in your loan if the charge doesn’t apply to every borrower. For instance, you won’t see the costs associated with things like fixed-rate loans and break fees, or late payment fees.

Additionally, your comparison rate will not include any external charges that vary between different locations in Australia – such as government stamp duty.

Why is a Comparison Rate Important?

While a comparison rate doesn’t give you all the information you could need for your home loan, it does mean you’ll be more informed when looking for a deal. A comparison rate gives you a great number to work with when you’re checking what’s available in the market. Just make sure that you look at other things too.

For instance, consider the kind of features that each loan can offer, and how vital those deals are to you. For example, you might want a home loan that comes with an offset account linked to it or a redraw facility. These features might be more important to you than paying slightly less on your interest rate.

Keep up to date

get updates on properties, news and more across Melbourne

More To Explore

Lifestyle

Airbnb Owners Be Warned as Tax Office Enforces a Massive Crackdown

The Australian Taxation Office (ATO) has put Australian Airbnb hosts on notice, warning the popular platform was now part of a wider tax evasion crackdown. Airbnb is is an online marketplace for arranging or offering lodging, primarily homestays, or tourism experiences. The company does not own any of the real estate listings, nor does it

Financial

NAB Offers Fixed Home Loan Rates Under 3%

3 out of 4 of Australia’s largest banks are now offering fixed home loan rates of under 3%. That means huge things for the future of Australia, provided that customers are actually looking to lock themselves into a new home.  The National Australia Bank cut some of its fixed interest rates on home loan contacts

Lifestyle

The Berlin Apartment That Brings You Closer to the Past

According to Gisbert Poppler, having people over to his home means inviting them to explore the ghosts of Berlin’s past. Gathered around the dining table in the Mitte district of Berlin, are three velvet chairs that were salvaged from the Honecker lounge. The lounge was located at the State Council Building in Germany and have

Lifestyle

Travelling in Style with £1.5 million Luxury Apartment on Wheels

A family of 8 in Australia plans to travel around the country in opulence and style with their new luxury apartment on wheels. The campervan, costing around $2 million in total is a two-story living space, which comes with two bedrooms, all equipped with televisions, as well as a bathroom, kitchen-dining areas, and a seating

Looking for a property?

Search across Melbourne with Buy Melbourne Apartments

Copyright Buy Melbourne Apartments 2019

Built with by Idea Engine