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What are Comparison Rates?In the long distant past some home buyers were shocked to learn the interest rate they were actually paying after the closing of their home was higher than the interest rate they were quoted. What happened? Back then, lenders were allowed to hide a variety of obscure fees the borrower would be required to pay in the fine print of the mortgage note. Today, the law requires lenders to post a “Comparison Rate” alongside the stated interest rate for the loan. The comparison rate is closer to what you will actually pay. Here is an example of the fine print you’ll find on a typical Australian mortgage website which explains how the Comparison Rate is calculated and what it does and does not include: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a home loan. The comparison rate displayed is for $150,000 over 25 years, and applies only to this example. Fixed rate loans assume a 3 year fixed term. Different amounts and terms will result in different comparison rates. Full comparison rate schedules are available from lenders. Costs such as redraw fees or early repayment fees, and savings such as fee waivers, are not included in the comparison rate but may in?uence the cost of the loan. As you can plainly see, even with these legal protections in place, there still may be fees hidden from the borrower. This is especially true with the “teaser” rates typically offered as introductory or honeymoon loans. If you want to know the true cost of your loan, nothing replaces working with a trustworthy mortgage broker or lending institution. Even then, if you are using a real estate lawyer in your home purchase transaction, have him or her review the fine print of the mortgage before you sign. You’ll be glad you did. |
