How to choose the best home loan offer

We’re trying to educate members and would love your help.

This article explores what Comparison Rates are, and we expose creative marketers who put out a low interest rate to tease people into thinking they’re getting a great deal.

When you see an advert and it states something like;
Interest Rate: 2.10%pa | Comparison Rate: 3.99%pa

Don’t get too excited as it may be costing you thousands of dollars extra.
Our tip is that you need to focus on the Comparison Rate and not the Interest Rate.

What are comparison rates?
One of the best ways to compare loans is by checking the comparison rate, which is an indicative interest rate designed to help the general public identify the “true cost” of a loan. Think of it as the “average annual percentage rate”.

Why are they so useful?
Well, they take into account the interest rate (intro and ongoing) as well as any ascertainable fees and charges associated with the loan, to express the cost of a loan into a single rate. Fees could include an application/ establishment fee, monthly loan account fee and annual package fee.

A high comparison rate may mean a high upfront fee and ongoing annual fees. So if you’re getting charged say $600 per year, over a 20 year period, this annual fee alone could work out to $12,000!

Why do comparison rates exist?
Comparison rates have been a legal requirement in Australia since July 2003, and were introduced to help people make a better choice between loans.

Member-owned banks like First Option love them because they force all lenders to be accountable and honest about high fees and charges, so banks can’t just advertise a low rate to entice people to sign up.

How do they work?
By law, all lenders must use the same amounts and terms when calculating their comparison rates. For example, home loans must be calculated on a loan amount of $150,000 over a term of 25 years.

And if you want a personalised home loan comparison rate, based on your specific requirements, you can visit our website and request a Home Loan Key Facts Sheet.

What we recommend
When comparing home loan or investment loan rates out there, take note of the comparison rate. This is much more important than the advertised rate, which is usually a fixed rate for a short time. The comparison rate gives you a much more accurate idea of the true rate you’ll be paying over the life of the loan.

What else should you ask?
You need to consider all the features and other fees that may exist, so ask about;

  • Redraw facility
  • Exit fees
  • Mortgage Offset
  • Ability to pay out your loan early
  • Ability to make additional payments without penalty
  • Hardship policy
  • Ease of contacting someone when your circumstances change

Let’s connect for a chat
Call us to see how much money we could save you on 1800 362 265 or email our team at [email protected].

Here are our current Home Loan and Investment Loan offers: