E-LOAN A better way to get a loan ®
Privacy and Security Guaranteed.
Home Purchase Refinance Mortgage Home Equity
Contact Us

Comparison Rates - How do they help you ?

The Comparison Rate  on a mortgage is higher than the interest rate because the Comparison Rate takes into account some of the costs that you pay when getting the mortgage.

The purpose of a Comparison Rate is to give you an indication of the real cost of your borrowings over the life of your loan so that comparisons can be more easily made. You see, sometimes you may be offered a special discount or an attractive start up rate for a fixed period at the beginning of your loan agreement and once the fixed period has expired the rates may increase. So the rate you pay at the outset doesn't actually tell you the annual percentage interest rate that you may have to pay in the future.

A comparison rate is a tool to help consumers identify the true cost of a loan. It is a rate which includes both the interest rate and fees and charges relating to a loan, reduced to a single percentage figure. For example, a bank’s advertised interest rate may be 5.49% and its comparison rate 6.75%.

How is a comparison rate calculated?

Comparison rates are calculated in accordance with a standard formula, which takes into account:

    • the amount of the loan;

    • the term of the loan;

    • the repayment frequency;

    • the interest rate; and

    • the fees and charges connected with the loan, except for government charges, such as stamp duty or mortgage registration fees; fees and charges which may or may not be charged, because they depend on some event which may or may not occur  (for example, fees for early repayment or redraw fees); and  fees and charges which are not ascertainable at the time the comparison rate is provided.

Comparison rates in advertisements

As different loan amounts and terms produce different comparison rates, comparison rates in advertisements must be based on the amount and term in a legislated standard list that is most typical of the loan being advertised.

Comparison rate schedules

A comparison rate schedule is a list of comparison rates for a range of standard loan amounts and terms for a particular credit product.

The standard amounts and terms have been set in legislation and a comparison rate must be provided for all of the listed amounts that are generally available for that credit product.

As they use the same loan amounts and terms, comparison rate schedules can be used to compare the comparison rates of different credit products.

Comparison rate schedules must be made available at any premises of a credit provider, finance broker or linked supplier at which consumer credit products are advertised or at which members of the public can lodge credit applications in person.

A relevant comparison rate schedule must also accompany any credit application that is sent or given to you by a credit provider, finance broker or linked supplier.

Points to remember when using comparison rates

  • A comparison rate can be a useful tool for comparing the cost of different loans, but it is important to consider all of a loan’s features and not just focus on the comparison rate.
  • Remember that the comparison rate does not include government fees and charges or fees and charges which will only charged in certain circumstances. Therefore the comparison rate may not provide a complete picture of the total cost of a loan.
  • A comparison rate also does not take into account some factors which may make a loan more attractive, such as flexible repayment arrangements.
  • You should give careful consideration to whether these features are important to you and the effect they will have on the cost of the loan.
  • The amounts and terms shown on a comparison rate schedule do not represent all the possible combinations of amounts and terms. This means the amount and term of your particular loan may not be included in the comparison rate schedule. In order to get an idea of the comparison rate which applies to your loan, look at the comparison rate for the amount and term closest to the amount and term of your loan.

Caution on Comparison rates

A  recent study by a leading industry researcher revealed inconsistency by lenders in the calculation of comparison interest rates, a measure mandated by law and intended to aid prospective borrowers in comparing home loan products. The researcher said while some lenders applied the spirit of the law to their comparison rate calculations, other lenders used a liberal interpretation. These latter lenders do not properly account for all fees relevant to taking out a loan.

Need help or advice? Call 1-888-533-5333
Fixed and variable rates explained.
Understanding Comparison Rates.
Types of Loans.
First Home Owners Grant
Mortgage and Buying Costs
Buyers Advocates
How much can I borrow?
Monthly repayment calculator.
Stamp Duty Calculator.
About Us
Who is ELoan?
Contact Us.
Privacy Policy.
Award Winning Ads
Eloan's Quirky Ads.

Ubank 6.59% Online Offer

Copyright 1997-2005 E-LOAN Australia Pty Ltd. All rights reserved. Home mortgages and car loans subject to credit
review and approval. Properties and vehicles securing all loans must be located in Australia.
VeriSign Secure Site TRUSTe Privacy Seal