When you go in search of a home loan, regardless of whether you’re looking to buy a new home or to refinance, it’s important to compare interest rates. This means focusing on the advertised rate and the comparison rate, as this gives you the best indication of what your home loan will cost you once fees and charges have been added.
By law, if a home loan rate is advertised then it must be accompanied by a comparison rate. Comparison rates allow borrowers to understand how much a home loan really costs. But, it also is important to know that comparison rates have limitations. Let’s look at comparison rates now to better understand how they work.
Comparison Rates Defined
Comparing home loans that have varying interest rates and fees, as well as charges, can be difficult. So in order to make comparing home loan rates easier a comparison rate is given. This rate includes all fees and charges so a borrower can compare the true cost of home loans.
However, comparison rates are typically calculated using a fixed loan amount, which in most cases is $150,000, and a loan term of 25-years. Your loan amount and term may differ to this, and this may change your interest rate.
Should I Select the Cheapest Comparison Rate to Make the Best Saving?
As we’ve just stated, the comparison rate is based on a fixed loan amount and loan term, therefore in order to calculate the true cost of your home loan you need to carry out your own calculations based on your loan amount and loan term. This will then give you an accurate comparison and enable you to determine which home loan is the most effective for you.
The simplest way to calculate a comparison rate for your loan amount and loan term, is to ask the lender for a fact sheet. Fact sheets typically contain all of the details of home loans that are on offer.
Home Loan Features
Another important aspect of home loans is the home features that are available. Features such as an offset or redraw facility allow you to reduce your home loan principal faster whilst having your money at your fingertips if you need it. But, they often attract higher interest rates. So you need to be certain you’ll use these features before you rush out and get them.
If you’re looking at using home loan features, then you also need to calculate how much the feature will cost you long-term, and whether or not you’re actually making a saving by having the feature in place.
Overall, if you’re unsure about using comparison rates, fact sheets or home loan features then contact a mortgage broker. They can help you make sense of the details and assist you to find the best valued home loan.
Do you need help to compare home loan rates? Then contact eChoice and find the right home loan for YOU.
Written by eChoice