Low interest rate. Lowest cost?
A low advertised interest rate does not automatically mean the lowest overall loan cost. ASIC explains that a comparison rate combines the interest rate with most fees and charges into one percentage, making home-loan offers easier to compare.
The interest rate is the rate charged on the amount borrowed. The comparison rate is calculated using a specified loan amount and term, so it is a comparison tool rather than a personalised quote or an exact forecast of what every borrower will pay.
What does a comparison rate include?
ASIC says it includes the interest rate plus most fees and charges. However, it does not include every possible cost. Government fees and charges that only apply in particular situations, such as some early-repayment costs, may be excluded.
A comparison rate also does not measure the value of product features. Offset accounts, redraw access, repayment flexibility and package conditions can affect whether a loan suits a household, even when two comparison rates look similar.
Compare offers on the same basis
Use the same loan amount, term and repayment basis when comparing offers. Then check the advertised interest rate, comparison rate, establishment and ongoing fees, conditions attached to discounted rates, and any feature costs.
Moneysmart recommends comparing loans like for like. The assumptions printed beside the comparison rate matter because a different balance or loan term can change the relevance of the published figure to your situation.
Put rate, fees and features on one page
BV Finance can help compare eligible home-loan options using consistent assumptions and the features relevant to your circumstances. Actual rates, fees, approval and suitability depend on the lender, product and individual assessment.
Sources and practical tools
General information only. This is not financial advice. Loan options and eligibility depend on your personal income, liabilities, assets and lender assessment criteria.
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