Is An Interest Rate And A Home Loan Comparison Rate One And The Same?

An interest rate and its working is not such a straightforward concept to understand. Add to that the home loan comparison rate and you may just find yourself in a vortex of confusion. But there is a way to simplify and differentiate them to know how they differ from each other and why. The expert mortgate brokers in Melbourne created home loan comparison co to put this information together in one spot so you can get a better understanding of these two rates and what their main differences are.

Home Loan Interest Rate

The home loan interest rate is essentially the annual percentage rate you will be paying on the balance of your home loan. It determines your total monthly payments which is equal to the principal plus the interest rate amount. The Reserve Bank of Australia (RBA) sets the interest rates. A meeting is held on the first Tuesday of every month to announce the official cash rate that may remain the same, increase or decrease.

These rate changes are based on factors such as inflation, the economy’s growth rate, employment and people’s expenditure. Higher interest rates discourage borrowing, dampen economic activity while lower rates exert an opposite reaction. The RBA’s decision is a signal for the lenders for setting their interest rates. These changes will also be evident when you are looking for loan-related information and calculating mortgage rates on

Home Loan Comparison Rate

The home loan comparison rate indicates the all-inclusive cost of the loan per year. This cost takes into consideration the interest rate you pay. It also includes fees and charges that rear their head at the start of the loan or throughout the year. So this rate has components that the home loan rate alone does not have.The cost calculation of this rate will vary depending on the type of loan you have.

How To Find the Comparison Rate

If the interest rate is advertised then they are legally bound to list the loan comparison rate. The advertisement text may appear like: variable interest rate 3.85%, comparison rate 4.50%, based on a loan of $150,000 over 25 years. It is not a single rate but a variety of rates that will be available for different categories like refinancing, first time home buyers, next home buyers, construction home loans etc.

The key facts sheet is another source where the lender specifies the interest rate, comparison rate and the amount payable over the life of the loan.

If you want to know more about the different types of loans,don’t hesitate to contact us! We’re expert mortgage brokers in Melbourne, AU. Get in touch today!