Why is the comparison rate different from the interest rate?
There are a few rates that can be used to compare the same home loan.
- The interest rate, sometimes known as the 'headline rate', which is the basis for the cost of the loan.
- The Comparison Rate, which is a rate calculated on the interest rate and any other fees and charges that are paid to apply for and set up that loan. However, it is only calculated using a fixed set of conditions: a $150,000 loan amount, 25 year term and principal and interest repayment scheme, not interest only. As the median price for a house in Australia is above this amount, a comparison rate is only a guide and not reflective of what may apply in your particular situation. However it is meant to be a more accurate reflection of the 'true' longer term cost of the home loan.
- The AAPR rate. This stands for the Average Annual Percentage Rate. It's a term we use to describe an ever more 'true' interest rate of a home loan over time. We use the AAPR rate when we rank loans in our Mortgage Explorer software, because it takes into account honeymoon rates, ongoing fees, introductory offers and discharge fees, as well as the advertised interest rate. The AAPR calculation is based on the actual loan amount and how much is charged for it over a 7 year period. The AAPR doesn't include government fees or early repayment fees and service fees like redraw and internet usage charges, but some of these are now almost always free and we believe that it is still a more 'true' reflection of the overall rate over time.
- As you can see there are lots of ways to compare different home loans, but we mainly use AAPR to give you a better indication of the cost because it includes product fees and charges that may apply over a longer time period.
This is all part of your home loan comparison service in your free appointment with an expert Aussie broker.