Q. I’m thinking of taking out a home loan of approximately $300,000 and I want to know how comparison rates are calculated. Are they as important as what they’re made out to be, or are the features of the loan most important?
A. For a loan amount of $300,000, the law states the comparison rate is calculated on a 30-year term. This means it shouldn’t be calculated over 12 months or 4–6 years. The comparison rate is calculated by taking into account the advertised interest rate of a loan (includes both honeymoon and revert rates over the loan term) as well as its upfront fees and ongoing quantifiable charges to represent them as one easy-to-compare interest rate.
When choosing a home loan, both the comparison rate and the features of the loan are very important. The comparison rate empowers you to compare ‘apples with apples’ when making those vital mortgage decisions. By the same token, a loan with product features such as redraws, direct salary crediting and the ability to pay weekly and fortnightly, can help make your mortgage work for you. By understanding such features and their benefits you can shave years off your loan and save money in the long term, even though the interest rate may be marginally higher on the better featured loan.