Comparing apples with oranges doesn’t make sense.
Lenders are required to publish a comparison rate to protect consumers and prevent them being misled when it comes to home loan interest rates. A comparison rate allows consumers to compare apples with apples, to an extent. It includes all the fees and charges that can be applied to a home loan, it helps to show customers what the true cost of a loan is. In some instances, lenders offering the lowest rate may not actually boast the cheapest loan, which is what a comparison rate shows.
When comparing products between lenders, there are lots of factors to be considered. For instance, a client is looking to borrow an amount of $630,000 with a purchase price of $700,000 and would like to be on a Standard Variable Rate with an offset account. In this scenario, the client will be charged an LMI/Mortgage Insurance fee since the Loan to Value Ratio is 90%. Let's compare!
| Bank A | Bank B | |
| Loan Amount | 630,000 | 630,000 |
| LMI | 16,320 | 14,159 |
| Initial Rate | 2.58% | 2.99% |
| Fees | N/A | N/A |
| Offset | YES | YES |
| Redraw | YES | YES |
| Early Repayments | YES | YES |
In the table shown, you can see the different rates offered per bank, the mortgage insurance fee, and the offered features.
In order to get an idea of the comparison rate that applies to a loan, it is a good idea for borrowers to work with a broker to look at the comparison rate for the amount and term closest to the amount and term of their loan.
Dream Catchers Lending is an MFAA-accredited member. We can assist with finding the right type of finance for you. Feel free to book an obligation-free virtual appointment or leave us your details.