What is a Comparison Rate? The Basics

All loans consist of the principal amount borrowed and the interest rate charge. Mortgages also accrue several fees for servicing and maintaining the account.  The comparison rate takes into account these fees. It allows the borrower to see the true cost of their debt. 

Mortgage House outlines the comparison rate basics. Let’s start with an example.

We offer several versions of the Affordable First Home Buyer Special home loan. Some rates applicants can obtain are 1.99%, 2.29%, and 2.79%. Their comparison rate is 2.03%, 2.33%, and 2.83% respectively. The comparison rate helps the borrower understand the total cost for obtaining any version of this home loan.

Mortgage House outlines both rates to remain transparent with its clients. 

For a $500,000 loan with a 1.99% interest rate and 2.03% comparative rate over 30 years, the monthly repayment equals $1,833.14. 

The Consumer Credit Code maintains the formula that calculates the comparison rate. Banks and lenders adhere to it. 

Although the rate includes several fees, there is also a set that the comparison does not take into consideration.  They are stamp duty fees, mortgage registration fees, fee waivers, and offset arrangements. Nonetheless, it’s a good way to gauge the true cost of borrowing one mortgage over another.

Keep in mind that redraws and additional repayments change the overall rate. You can refinance a home loan when necessary.

Comparison Rate Conclusion

The comparison rate helps mortgage borrowers understand the true cost of their loans. It takes into account some fees. Loan specialists at Mortgage House help applicants find this number too. For more information, contact our team.

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