What is a Comparison Rate and Why Does it Matter for Your Home Loan?

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When you start browsing for home loan products, you will come across a variety of different values and details. The specific details of each loan option can be confusing for first-time home buyers.

One figure that you may frequently see next to the proposed interest rate is the comparison rate. The comparison rate is typically higher than the listed variable or fixed interest rate.

To accurately compare your options, you should know what a comparison rate is and what it means for your home loan application.

What is a Comparison Rate?

A comparison rate provides a better example for home buyers to use when shopping around for home loans. Lenders are now required by law to give these comparison rates when advertising interest rates to potential borrowers. Lendi have detailed comparisons including The Commonwealth Bank.

The requirement is part of the National Credit Code (NCC), which was established by the National Consumer Credit Protection Act 2009. Instead of merely displaying the proposed interest rate, lenders must include a comparison rate that includes the interest rate and applicable charges.

While it is still difficult for a borrower to determine their monthly home loan repayments using the comparison rate, it does provide a baseline for comparing the loan products being offered by multiple lenders.

How is a Comparison Rate Calculated?

As mentioned, the comparison rate includes the interest rate plus various charges. The charges do not include any fees charged by the government or charges that are applied in exceptional circumstances.

The NCC requires lenders to calculate the comparison rate based on a home loan amount of $150,000 on a 25-year term. The calculation also includes the repayment frequency, proposed interest rate, and the applicable charges.

Should You Pay Attention to the Comparison Rate?

The comparison rate provides a more accurate indication as to the actual cost of a home loan. It includes more than just the interest rate. It covers a variety of fees that are often included in the home loan.

The primary benefit of this rate is to give you a better idea of how much your home loan will cost when you are comparing loans. However, this value is best used when comparing loan options from multiple lenders, as they may charge varying amounts for the same fees.

The comparison rate is not the only criteria that you should consider when comparing loan options. You should also consider the features that you may require in a home loan, such as setting up an offset account or completing your repayments early. These details need to be part of your consideration when selecting a lender for your home loan.

Begin Browsing for Commonwealth Bank Home Loans

Now that you know more about how comparison rates work for obtaining a home loan in Australia, you can start comparing your options. Commonwealth Bank offers a wide range of home loan solutions to suit your budget and credit history.

Start comparing options online today, or talk with a home loan specialist to receive help finding the best home loan.