COMPARISON RATES
What is a comparison rate?
A comparison rate is a tool to help consumers identify the true cost of a loan.
It is a rate which includes both the interest rate and fees and charges relating to a loan, reduced to a single percentage figure. For example, a bank’s advertised interest ratemay be 5.49% and its comparison rate 6.75%.
Why did the government legislate that credit providers provide comparison rates?
This is best explained by an example. A bank could have an interest rate very low at say 3% but may every year to charge $10,000 in fees and charges. When the $10,000 is taken as a percentage over the term of the loan the true interest rate is much higher and its likely that it would be cheaper for the consumer to take an interest rate of 6% and not pay the $10,000 per year.
This is why the government legislated that comparison rates need to be included – to give the consumer a clear idea of which loan is the cheapest when all the fees and charges are taken into consideration.
When must I be provided with a comparison rate?
Comparison rates only have to be provided for:
· credit which is wholly or mainly for personal, domestic or household purposes;
· fixed term credit — that is, credit that must be repaid within a specified time period. (A home loan with a term of 25 years, and a car loan with a term of 5 years are examples of fixed term credit. In contrast, credit cards, which do not have to repaid within a particular time period, are examples of continuing credit).
How is a comparison rate calculated?
Comparison rates are calculated in accordance with a standard formula, which takes into account the;
· amount of the loan;
· term of the loan;
· repayment frequency;
· interest rate; and
· fees and charges connected with the loan, except for government charges, such as stamp duty or mortgage registration fees;
— fees and charges which may or may not be charged, because they depend on some event which may or may not occur (for example, fees for early repayment or redraw fees); and
— fees and charges which are not ascertainable at the time the comparison rate is provided.
Points to remember when using comparison rates
1. A comparison rate can be a useful tool for comparing the cost of different loans, but it is important to consider all of a loan’s features and not just focus on the comparison rate.
2. A comparison rate also does not take into account some factors which may make a loan more attractive, such as fee free banking, or flexible repayment
arrangements. For example, an offset account or redraw facility could save you a lot of money in interest so a loan with a slightly higher comparison rate but with this feature may still be the better option.
As always, any questions do not hesitate to call or email us.
DaniellaWorking with Michael was an absolute delight.
I was a first home buyer and couldn’t think going anywhere else. Highly recommend to go through MAP home loans.He was quick to respond to all my queries, managed to get the loan approved under a strict timeline and I was very impressed. Michael also followed up with me once I settled, I truly appreciate all his hard work to make this happen.
Adnan SharafatI am very thankful to Michael for my primary property construction loan. I approached many mortgage agents for the loan amount as desired, but they could not process because of my overseas profile.
I am an Australian PR holder, based in Dubai and after reading online reviews of MAP loans, I approached to Michael where he completed my construction loan process very confidently even, I did not feel that I am living in different time zone as he was always available for my queries.
Michael also helped for my investment property loan, and again he did awesome job and completed the loan approval process in less than a month. I would like to strongly recommend him for the home loan services with no hidden cost and surprises.
All the best Michael in your future success 😊
PeterMy wife is on a 820 visa and Michael helped us get a home loan. He was a great with communication and answered all of my questions. Recommended if you have if you have issue surrounding temporary visas or you just want a great mortgage broker.
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