Comparison Rates by law must be displayed with any high level form of lender marketing…but what exactly does it mean?
You see a lender ad on-line or maybe on a poster in a branch with an extremely attractive rate that screams 1.69%. Wow it seems to good to be true! And then you see it. The smaller sized numbers that say 3.69% as a Comparison Rate!
So what is it? A Comparison Rate includes all of the fees and charges that can be applied to a home loan. It’s there to help show customers what the true cost of a loan is. In some instances, lenders offering the lowest rate may not actually boast the cheapest loan, which is what a comparison rate illustrates.
Essentially a comparison rate allows consumers to compare apples with apples, to an extent. It does make it much simpler to hold two loan products side by side and, regardless of whether one has a slightly higher interest rate and no fees while the other is a super-low interest rate with high fees, see at a glance which one is the better deal financially.
Whilst the comparison rate must be displayed quite prominently along side the advertised rate the other noted statement that will appear is that the ‘Comparison rate is calculated on a loan of $150,000 for a term of 25 years, with monthly repayments’.
So considering the fact that the average loan size in most capital cities varies between $400,000 to $600,000, if your loan is going to be for $500,000, the comparison rate for your loan will be vastly different. That’s why most people believe a comparison rate is effectively an ineffective way of measuring loans against loans.
At Horizon Mortgages we have sophisticated IT software that in ‘real time’ can compare thousands of different loans at any loan amount/ loan term & with extra repayments incorporated which will show you the true comparison figures.