Comparison Rate and the Fixed-Rate Loan: What You Need to Know
Fixed-rate loans work differently from their variable rate counterparts. To receive a consistent monthly repayment amount, the borrower agrees to a contract. If they break the contract, they incur break cost fees.
The comparison rate for the fixed-rate loan shows that its fees are higher. For variable rate loans, the typical difference between the interest rate and comparison rate through Mortgage House is .04. On fixed-rate loans, the difference varies. It ranges from .40 to .72.
Before obtaining a fixed-rate mortgage from a bank, take a look at the comparison rate. Mortgage House is a non-bank lender. Our team has more freedom and tools to find competitive rates for our clients. The process that banks follow is strict.
Mortgage amounts have increased in Australia over the last several decades. When the average home loan size remained near $150,000, the comparison rate formula had more effectiveness. It’s tougher to gauge the true cost of home loans in 2021. Home loan amounts are significantly higher.
However, it’s still a helpful tool. Homebuyers should understand the terms of their mortgage. It’s a lot of information. Every contract contains financial and legal jargon that takes effort to understand. Those who understand it in more depth benefit from tools that allow them to save money over the life of the mortgage such as the mortgage calculator.
Comparison Rate and Fixed-Rate Loans Conclusion
While the comparison rate is not a perfect formula, it helps the borrower understand their loan’s fees. The rate shows a big jump between it and the interest rate, even though it’s a fixed-rate mortgage. Mortgage House loan specialists provide applicants with additional insight. Contact our team today.