On the hunt for a home loan? While you're paying attention to the interest rates offered, it's worth taking a closer look at comparison rates too.
While some borrowers just use interest rates to compare home loans, comparison rates can be a handy tool to help you identify the true cost of a loan.
How does a comparison rate work?
A comparison rate includes the interest rate of a loan plus all the fees and charges relating to that loan, like establishment and monthly fees. These are combined into a single percentage figure based on a defined loan term and loan amount.
While they're a useful guide, here are some points to keep in mind about comparison rates:
- In Australia, comparison rates are always calculated on a standard loan amount of $150,000 and a loan term of 25 years. This may be different to the loan amount and term that you have in mind.
- Some home loans also come with a minimum amount you can borrow (for example $500,000). So even though the comparison rate is calculated on a loan of $150,000, you might not be able to borrow that amount in reality.
- Keep in mind too that home loans can also offer additional benefits which aren't included in comparison rates (such as extra repayments).
- Some fees may also be excluded from the comparison rate, such as redraw or early payment fees.
If you have any questions about comparison rates or doubts about what loan best suits your needs, a Great Southern Bank Home Loan Specialist can offer advice tailored to your personal situation.
To talk with one of our home loan specialists, call 133 282 or enquire online.