With interest rates at record lows, you may be looking around for a better mortgage deal – and so you should be. However, make sure you look at “comparison rates”, not just “advertised rates”.
Remember that lenders are also looking for customers and the advertising is designed to make their products look good. Loans may be advertised at a cheap rate, while hidden in the fine print are upfront fees, annual fees and other conditions.
Many borrowers do not understand the difference between the advertised rate and the comparison rate. So, here it is. The advertised rate is typically not the full cost of the loan because it doesn’t take into account extra fees or charges. These additional fees can push up the cost of the loan by a full percentage point, or even more, above the advertised rate. The comparison rate, on the other hand, does take these extra fees into account, expressing the full cost of the loan as a single annual percentage.
Lenders must include the comparison rate in any advertising material; this was mandated by the Australian Government back in 2003. The comparison rate is a much better tool for determining the true cost of a home loan – in fact, as can be deduced from its name, it was designed to help borrowers compare loans more effectively.
In saying that, borrowers should also be aware that comparison rates are actually based on an outdated average of a $150,000 loan over a 25-year term (since that’s how things looked in 2003). These figures are no longer relevant to most borrowers and can skew comparison rates to look better or worse than they actually are.*
Confused? I can help. Please give me a call and let me help you to properly compare the rates offered by our panel of over 30 lenders.
Together we can look at how different loan rates compare in terms of the total cost of the loan, including any upfront or ongoing fees. We will also take into account all the other loan features that can make a loan more suitable for you, such as credit cards, savings products, insurance, offset accounts, redraw facilities, penalties and other conditions.
Cairns Mortgage Broker – Jason Thomson is a Mortgage Adviser and Finance Broker based in Cairns with clients all around Australia. Client reviews featured on his website prove that Jason is a trusted industry professional, facilitating great outcomes for his clients. Using his wealth of experience in financial services, he thrives on delivering superior service. Jason is very approachable and is always looking for new clients to help in the often confusing world of finance and property. Offering a no fee service, you’ve got nothing to lose by having an obligation free chat with Jason today.