Q: I am looking to buy a new property and I have been doing some research online using comparison sites. They seem to focus their attention on interest rates, but shouldn’t I be considering other things? How reliable are these sites?
A: These sites are generally reliable are far as the information they contain, but they do claim to make finding the right loan for your circumstances simple and easy by comparing interest rates.
We all know that home loans aren’t that simple and these sites really don’t take many other factors into consideration, such as your personal circumstances or property ownership goals.
Consider how comparison sites make their money
A key thing to keep in mind is that comparison websites are a business and they need to make money, which is fair enough, but how are they making money?
Advertising is one way they make money as well as commission from the lenders they offer, which is normal. Just be wary that some may also charge lenders to feature on their panel, which means the lenders may not be there based on merit alone, so just make sure you consider which lenders are, or more importantly aren’t, being compared and why that might be the case.
ASIC, the Australian Securities and Investments Commission, regulates online comparison sites and says it’s concerned that they1:
- only compare a limited number of brands/products from a limited number of providers, which may not be clearly disclosed, creating the impression that the extent of comparison is much broader than it actually is;
- use ‘ratings’ and ‘rankings’ for products without a clear explanation of the basis for those ratings and rankings; and
- refer to ‘special offers’ and ‘featured products’ without properly explaining the basis of selection of certain products.
Consider the comparison rate
ASIC also says that these sites have to show a loan’s comparison rate – which is essentially the true cost of a loan including most fees and charges. Comparison rates are shown as a percentage and should be considered in combination with the interest rate and a loan’s features and flexibility, like offset or redraw accounts, additional repayments functionality, online banking, etc.
Use more than one source of information
Also, while this may seem obvious, make sure you aren’t basing your borrowing decision off these sites alone. Just because the repayment figure looks like an amount you can afford each fortnight or month, there are other factors to consider when working out your true borrowing power, not to mention what a lender will actually approve for you.
Online comparison sites can be a place to start your research and should contain accurate information, but it’s important to do some additional research to make sure you’re not just being given information that a company has paid for you to receive.
Aussie recently did some research, and we found that borrowers are using less traditional research sources such as advertising and online research. Social media gained in popularity as a research source, with the percentage of people asking their friends and followers’ advice increasing by 7%. Similarly, the number of borrowers seeking recommendations from friends/family/ colleagues also grew by 5%.
First home buyers are the most savvy when it comes to seeking recommendations from their social networks both on and offline. While it shouldn’t replace getting expert home loan advice, one person’s good experience is a positive indicator for someone who’s shopping around, so I’m not surprised to see social referrals on the rise.
Once you’re serious about securing a home loan it’s best to speak to an expert. Mortgage brokers can compare different lenders and hundreds of home loans just like an online comparison site, but they can go a lot further and explain some differences between lenders and loans, as well as help you secure pre-approval so you’re one step ahead when you find that dream property.
Do you have a question for John? Leave it in the comments below and check back each Sunday to see if your question has been answered!