There’s nothing worse than sitting down with a lender and realising that you speak a completely different language! I’m not talking literally of course, but navigating the loan market minefield can be even harder when your lender is using highly technical terms.
One term that you will see and hear frequently when shopping around for the right loan is ”comparison rate” but what is a comparison rate and what exactly are we comparing? Luckily for you we have compiled a guide to comparison rates that anyone can understand.
In order to understand comparison rates we first have to take a look at interest rates. Don’t worry, this won’t take long!
An interest rate is the amount charged by a lender, in percentage form, for the use of assets by a borrower. So basically, a bank might offer you an interest rate of 4.19%pa while paying off your home. There are actually a range of fees and charges relating to a loan and a comparison rate is an easy way to know the actual cost of a loan!
So if your interest rate is 4.19%pa, your actual rate, or comparison rate, might be 5.83%pa.
So remember, the comparison rate is the consumer’s friend because it is the true cost of the loan compared to the interest rate that you’re initially presented with.
Interest rates can be a trap because they’re often advertised to look attractive and lure you in the door. Just remember that once you get into that meeting with a lender that all you need to do is ask. Always ask a lender what the comparison rate is and, if need be, get them to calculate your repayments based on the comparison rate.
A rule in first home buying and in life is that knowledge is power. It’s in your interest to look beyond the interest rate because first home buyers often feel the financial pinch. With little to no assets or extra money in the bank, every penny counts and knowing all the charges on your loans can help you to meet your budget.
A comparison rate is one of the most important pieces of knowledge you have because it gives you truer figures and takes away those hidden surprises. Think of it like buying a used car. By looking under the hood you might realise that there will be plenty of extra costs to keep you on the road. A comparison rate is like throwing open the hood on your loan and showing you everything you need to know.
Even with all of that information you might not know exactly how to get the right rate for you. That’s where a professional mortgage broker comes in. If you need help with your loans and your comparison rates in Adelaide then contact the team at AAA Mortgage Solutions. We can do all the legwork for you, helping you to secure your home on a great rate. Call 08 8182 5555 today!