Several years ago the federal government thought that it was a great idea to make lenders disclose not only the actual rate that they were charging,
but also what their effective (or the true cost of a loan) interest rate is. This was done to allow consumers to understand more fully what a loan would cost, and how the various lender offers compared to each other – therefore a 'comparison rate'
The issue is that when you see an advertised rate / comparison rate it is based on one single scenario – usually a loan of $150,000 over a term of 25 years. So, if your loan does not match that scenario the comparison rate is not correct for your circumstances. Your actual comparison rate may be higher or lower. A loan that seems cheaper may well not be when your individual requirements are assessed.
To check your own scenario you need to log into the lender's website and find a 'Home Loan Key Fact Sheet'; having found this you can enter your own loan details and get a more accurate personalised comparison rate. Now we are back where we were many years ago – when you look at a lender's scenario rate you may discount that lender from your shortlist, only to miss out of a great deal that matches your own circumstances.
The comparison rate is also skewed by how individual lenders interpret the rules. Lender A, for example, may include every possible fee or charge (even though you may never actually pay them), while Lender B will leave some out (because you may never pay them) – so the comparison rate is out again.
Let's explore getting that home loan. You have worked out how much you need and have decided what loan term you want. Time to hit the web and look at all the lenders that you can think of. OK, do you want a fixed rate or a variable rate, what about those super special rates for the first couple of years? Better write them all down. Now let's find the key fact sheet and compare all the options from the first lender… there goes an hour of your life.
Confused? Well there's only about 200 or 300 lenders offering home loans in Australia – each with up to 10 different loan options.
Now imagine a world where you can talk to a finance specialist that can assess your borrowing options, talk through what's important to you and shortlist the type of loan that matches your requirements.
Imagine then asking that lending specialist to compare a range of lenders for you and having an accurate answer in minutes. Well, there is just such a thing – a lending specialist that is not only highly trained and experienced, but also comes equipped to be able to prod a range of lenders to get this information in minutes. Even better, that specialist can even do the loan application for you and negotiate with the lender.
There are lots of tricks and trips to getting the right home loan; the best and easiest way to get that elusive great deal is to talk with Collins Hume's mortgage professional David Seymour on 02 6686 3000 or 0418 785 747.
David Seymour is an Authorised Credit Rep No 477331 of Regional Finance Solutions Pty Ltd ABN 71163893945 Aust Credit License 484980.