What is a home loan comparison rate?

Are you planning to buy, build, refinance, or renovate your home? To knack the best deal on a home loan, it is important to understand the comparative rates and how it works. After all, a small difference in the interest rate is all that adds up to make the whole amount to be paid in the long run.  Here is what Ezzat Daniel Nesheim, a finance expert has to say about the home loan comparison rate to help you make an informed decision when you are considering making that long term loan commitment.

What is the comparison rate?

A comparison rate is the representation of the total cost of a loan to be paid yearly. The aim is to let customers have the knowledge of the real cost of a loan that different financial institutions and mortgage banks are offering. The calculation is done by putting different factors into perspectives and these include:

The interest rate

Fees charged by the establishment when the loan was taken.

Amount to be repaid per month

The number of times repayment can be made: typically monthly

Ongoing fees

The duration of the loan

A comparison rate is to serve as a road map when searching for loans and to provide guidance. Banks and mortgage providers are obliged by law to provide comparison rates to help customers compare loans. The aim is to ensure fair and honest dealings and to prevent unexpected hidden charges.

What it does not entail:

While a comparison rate gives a clearer picture of what to expect when it comes to home loans, there are other fees that might be included. These are:

Government stamp duty

Fees associated with loan types or situations such as break fees, late payment fees, or redraw fees.

Some legal fees such as conveyancing fees

Likely cost savings like offsets account benefits that can affect the overall cost of a loan.

What do you stand to gain with a comparison rate?

A loan with an attractive interest rate might not be what it appears to be. When looking for home loans or you come across advertised one. The comparison rate will help you look beyond the interest rate and provide more accurate information on the real cost of the loan. However, there might be home loans flexible repayment arrangement, duration of repayment fee waivers and other offset options that aren’t stated but can also make a great deal of impact.

Where can the comparison rate be found?

there are various home loan options from various mortgage providers and financial institutions that will always come with comparison rates.

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