A Property Investors, Home Loan Mortgage holders guide.
What is a mortgage interest rate comparison rate and why do we need it?
If you are a Property Investor, that is you own a rental property the mortgage interest rate comparison rate means little. It will only matter as far as the consumer credit code is concerned if you have a loan on your principle place of residence that is not used for investment or business purposes. However, It may be helpful to property investors to cost a mortgage refinance or prospective property investment.
A comparison rate is an Australian Interest Rate figure designed to help home loan mortgage borrowers identify the true cost of a home loan, mortgage, personal loan, consumer loan, any credit with a fixed term. The figure will include both the interest rate and fees and charges relating to a loan, combined to give a single percentage figure. A good example is: a major bank’s advertised standard variable interest rate may be 9.49% and its comparison rate 10.75%.
The ongoing fees and charges added to the actual rate give the comparison rate. It allows the prospective home loan mortgage borrower the opportunity to compare mortgages and other non home loans on an apples with apples basis. It helps you weed out the loans with high fees, or lets you know what the real cost of all the bells and whistles of a home loan or non home loan.
A comparison rate standard formula is used to calculated the figure for each home loan mortgage. The formula takes into account:
• the amount of the home loan or mortgage
• the term or time of the home loan or mortgage
• the repayment frequency
• the interest rate charged at the time
• the fees and charges connected with the loan
A home loan comparison rate will be useful to you in ascertaining almost the true cost of a loan. However it is only a guide as many lending institutions have very complex loan agreements and the actual fees are very hard to understand. They get out of having to include items in the comparison rate because: The comparison rate does not include government fees and charges or fees and charges only levied in certain circumstances. The comparison rate figure will not take into account some features of a home loan which may make a loan more attractive to you, such as fee free banking, weekly repayments or free redraw. If you are a current mortgage holder I suggest you look at the benefits provided by a mortgage statement checker. There are a few mortgage checkers available, choose one and use it to make sure you are not being ripped off by your bank or lender.
Your mortgage broker will have a comparison rate schedule available for you to use. However careful consideration of the features of any loan you may be considering may be more important to you. Having your mortgage broker as part of your Wealth Through Property Investment Team will negate the need to research loans to the Nth degree.