Are You Comparing “Apples to Apples”

Written by Rates Direct in Buying on November 29, 2013

comparison home loan rates can be difficult to interpretWhen taking out a home loan, borrowers should consider all associated costs and not just the headline rate to ensure they’re getting the best deal possible – and avoid any surprises.

Thanks to legislation passed in 2003, all lenders must include a comparison rate when advertising their interest rates, although these rates can be quite confusing for mortgage borrowers.

Based on the average annual percentage rate (AAPR), the comparison rate wraps up interest payments and fees and expresses all of these costs in one rate.

However, there is a danger that comparison rates will lead some consumers to oversimplify their loan choice and not look beyond the price of a loan to the suitability of features.

Points to consider:

• Comparison rates offer a pricing comparison, factoring in interest costs plus upfront and ongoing fees. They do not consider early repayment fees or government charges

• They also do not consider account features such as repayment flexibility, redraws and offset accounts which can vary greatly between loans and can have a significant impact on costs

• Comparison rates vary depending on the loan term, how much you borrow and the type of loan you take out

• Be careful of headline rates. Some lenders advertise their low comparison rate, which may not be reflective of the actual loan rate you take out

• You can seek expert help from your lender or mortgage broker if you are unsure.

Rates Direct managing director, Ty Halse, said: “When looking for a home loan it’s important to compare the loan interest rates, in addition to the other costs involved such as establishment fees, approval fees, upfront and ongoing fees. This is the true way to compare apples with apples and avoid surprises when it comes to making your repayments.”

To see if you can get a better deal on your home loan, check the Rates Direct – Rate Finder.




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