As you get yourself involved in home loan shopping you will discover something which is called comparison rate that will be noted next to the advertised interest rate.
Comparison rate helps you to calculate the real cost of the home loan. It is the combination of interest rate and number of fees and charges you could expect to pay during the life of the loan. So, when you compare these comparison rates, it will make it possible for you to find out how much a home loan will actually cost you.
Let's say lender A charges interest rate of 2.5% pa and their fees are 1.0 % pa. That means their comparison rate is 3.5%.
Comparing that to lender B. Let's say lender B charges an interest rate of 2% and their fees are 2%pa. That means their comparison rate is 4%.
So, when you compare these two lenders, even if lender B’s interest rate is lower, the real cost of the home loan with lender B is more than lender A.
All lenders are required to publish their comparison rates and they are calculated as per the same standard. They all consider any upfront costs, ongoing fees and any revert rate.
What it does not include is early repayment fees, any redraw fees, does not compare benefits by others like offset account and any fee waivers.
So, while comparison rate is a nice guide to use, they don’t always provide you the whole picture. Hence, do not purely rely on comparison rates but factor in your personal circumstances and goals.
We can make it easy for you by comparing the loan products and find a suitable loan product with low overall loan cost.