As you enter the world of home buying, there might be some terms you’re unsure of – this is normal!
And when you’re deciding which home loan to go with, one of the key considerations you’ll likely take into account will be the interest rate – but what does this mean exactly?
An interest rate is the amount you are charged for borrowing money and is expressed as a percentage. But, when you’re looking at an interest rate that a lender is advertising, it’s important to also consider the comparison rate. This is because many lenders will advertise their headline interest rate, which is their lowest interest rate, to attract your attention. However, if you look more closely at advertised interest rates you’ll notice that they include another rate, the comparison rate.
So, what is a comparison rate?
A comparison rate reveals the truer cost of a loan. It takes into account the interest rate, plus most of the fees and charges relating to a loan, combined into a single percentage figure.
Advertising the comparison rate is mandated by law, and lenders have to advertise it alongside the interest rate. This makes it easier for you to compare home loans so you have a greater understanding of the real cost you can expect when paying back your home loan.
However, be careful not to get caught up only looking at the advertised interest rates and comparison rates when deciding which loan is right for you. Some loans offer different features, like an offset account or redraw facility and if a particular feature is important to you, the right loan might have a higher interest rate than a more basic home loan. What at first might seem attractive because of the interest rate, in reality may not suit your needs.
This is why it’s important to chat to a broker who, after learning about your circumstances and goals, can present to you a number of options that will help you on your journey and get you one step closer to buying your first property.
We’d love to help you – chat to us today.
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- Chapter One : Getting started
- Chapter Two : Your Dream Home
- Chapter Three : Money Matters
- Chapter Four : Ways to Purchase
- Chapter Five : Understanding Interest Rates
- Chapter Six : Understanding Home Loans
- Chapter Seven : Lending Sources
- Chapter Eight : Getting Your loan
- Chapter Nine : Choosing a Home
- Chapter Ten : Steps to Settlement