What’s the Difference Between ‘Interest Rate’ and ‘Comparison Rate’?

It’s not surprising that many people venturing into the property market are still confused understanding the difference between interest rates and comparison rates? Or are they one and the same thing as they always appear side by side? We clear up the confusion.

What is a comparison rate?

A home loan comparison rate is a percentage figure that represents the total cost of the loan per year after taking into account all loan costs. All lenders by law must display the comparison rate next to their advertised interest rates just like Mortgage House does.

A home loan comparison rate is usually worked out using the example loan amount of $150,000 over 25 years. The comparison rate includes the interest rate on the loan, required repayments, most upfront fees such as application fee or establishment fee, and ongoing fees and charges.

This way borrowers can make a real comparison when considering how much different loans will cost them. The comparison rate should be used as a guide only and use it to compare ‘apples with apples’, that is, home loan products with similar features.

It’s also important to further check with your shortlisted lender as the comparison rate does not calculate every possible cost involved with taking a loan especially if the charge may not apply to all borrowers, such as break fees for fixed rate loans or redraw fees.

What’s the home loan interest rate?

A home loan interest rate only reflects how much interest you will be charged per year on the balance of your loan, which determines your monthly repayments.

The difference between a home loan interest rate and the comparison rate:

In summary, the home loan comparison rate compares the overall cost per year of the loan and includes the interest rate as well as the various fees and charges that may crop up over the life of your loan. On the Mortgage House website we list the comparison rate right alongside the advertised interest rate for each home loan.

Mortgage House

At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.

But don’t worry, we can help with that.

If you’re thinking of buying a home, you can contact us for advice about the best options for you when it comes to your mortgage.

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