When it comes to finding the right home loan for you, one of the first features you’ll encounter on any lender site or comparison service is the mortgage comparison rate. It’s important to understand what this is and how it works as, in many ways, it can hold the key to saving you money on your home loan. Read more about what the term “comparison rate” means and find the best comparison rate home loan by comparing with Savvy.
A home loan comparison rate is a percentage figure shown alongside interest rates by lenders. While the interest rate is reflective of only one cost (interest), a loan’s comparison rate accounts for a combined figure of a loan’s interest rate and fees. This is crucial to be aware of when comparing home loans, as this rate is a more accurate reflection of the cost of the mortgage overall.
For instance, you may decide to go for a home loan with a 2% p.a. interest rate to help you save, but fail to account for the fact that its various fees add up to an equivalent 2.5% p.a., meaning the comparison rate would be around 4.5% p.a. In contrast, a loan with a noticeably higher interest rate of 3% p.a. may end up being cheaper for you if its fees only equate to around 0.5% of the loan amount, resulting in a comparison rate at a full percentage point lower at 3.5%.
Apply these numbers to a $500,000, 30-year home loan with monthly repayments and the results are stark: you’d save over $100,000 in interest and fees by opting for the loan with the lower comparison rate.
There’s a range of fees which are included in a home loan’s comparison rate, all of which are important for you to know before signing up for your mortgage. These include:
As important as it is to know what’s included in your comparison rate, it’s just as important, if not more so, to have an idea of which charges aren’t included. Some of these are:
While comparison rates can seem like a relatively long and complicated process, this isn’t really the case. Fortunately, you can use Savvy’s home loan comparison rate calculator to crunch the numbers on what the comparison rate will actually be on your personalised home loan (and how much it’ll cost you overall).
In terms of how a comparison rate is calculated, each rate is based on the same metric to ensure you as a borrower can compare apples with apples. Whenever you see a comparison rate listed on a home loan offer, this is calculated based on a $150,000 mortgage repaid over 25 years. It’s important to know this, as the comparison rate you see on your ideal lender’s site may not be reflective of the loan you’re eligible to apply for. That’s why it’s important to calculate this rate yourself or seek out pre-approval to get an idea of an indicative rate.
Perhaps the simplest way to find the best comparison rate home loan is to survey the market as closely as possible before you apply. By comparing home loan options with Savvy, you can set yourself up to make the most informed decision on which mortgage will cost the least overall.
By reducing your outstanding loan debt at a faster rate, you can slash the amount of interest you’re set to pay on your home loan by tens of thousands of dollars. This also applies to loans which come with ongoing fees, as reducing the term will also cut down on the total cost of these charges.
If your loan comes with an offset account, you can potentially save yourself a significant amount of money. This is because any funds deposited into this account are subtracted from your loan principal interest-free. An offset account will also help you pay off your loan sooner.