Aaron Whybrow explains how comparison rates work: they bundle the advertised interest rate with fees like application and discharge costs, spread across your loan term. A mortgage advertised at 2.99% might have a comparison rate of 4.1% once fees are included. Get your own tailored rate rather than trusting the headline number.
What is the comparison rate? Hey, it's Aaron from Diagnostics and Finance. Comparison rate comes up a lot. You might have seen it on the TV, where a bank rate will be 3.43%. Not saying that that is the right rate for you. And then the comparison rate is 3.78. Or what I'm finding more commonly is that you can get a rate of 2.99% with a comparison rate of 4.1. So what is the difference? What does this mean? When you look at the terms and conditions on the TV, you will see something that says over 25 years of a borrowing of $150,000. Now, just between you and me, $150,000 is not very much. And people that owe $150,000 do pay a lot more interest if it's that only that amount. So people that have $500,000 on their mortgage, a comparison rate, and you've got it over 30 years instead of 25, there's a need to look at your individual comparison rate. And the comparison rate is really the difference between the actual rate you're paying, any monthly fees, annual fees, discharge fees, application fees, and any of these single fees that along the way add up so that you can see what the true interest rate is of your product over the long term, over the 30 years, over the 25 years, over the 20 years, the comparable rate can be seen. So your actual interest rate could be 2.99, it could be 3.3, it, it could be 3.5. But your comparison rate needs to take into account the application fees and other fees that are along the way. And that's what makes it a little bit higher. There are some products out there that have a comparison rate of only 0.1 higher, and they're fairly good. That shows that there's less fees involved. And there's a product out there that even may be suitable for you that you pay 3.3% and the comparison rate is 3.9. So there's different features and opportunities within each bank related to how this works. So go in eyes wide open, get your individual tailored comparison rate, and if you want to see what yours is today for your current mortgage, let me know. And if you want to see what you can save by looking at this further, instead of looking at the high, really shiny interest rates of 2,99, get in contact today.
