Q: I am looking to borrow money to buy a new home and I have been doing my research on a number of online comparison sites. There seems to be a lot of variables rather than just interest rate, so it’s hard to know what the best product for me is. How reliable are these sites?
A: These sites are reliable are far as the information they contain, but they do claim to make finding the best 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 they:
· 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
· refer to ‘special offers’ and ‘featured products’ without properly explaining the basis of selection of certain products.
(for more info relating to the above please click here)
Consider the comparison rate
ASIC also says that these sites have to show a loans 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 loans features and flexibility, like offset or redraw accounts, ability to make additional repayments, or 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 good 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.
Once you’re serious about securing a home loan it’s best to speak to an expert. Mortgage brokers can compare different lenders and loans just like an online comparison site, but they can go a couple of steps 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 property you’re searching for.
Have you used comparison websites – what did you think of the service? Share your experience with us.
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