Have a think about how quickly you'd like to pay off your home loan, considering that most home loan terms are over 25 years. Our borrowing power calculator can help you find out how much money you could potentially borrow, as well as how much you can afford to repay. How much money will you borrow from your lender? Don’t forget: the more you borrow, the more interest you’ll pay over the life of the loan. Make sure you think about the following: Loan amount But you first need to understand your personal financial situation and how that translates to the types of home loan available to you. Choosing a loan is a big deal – picking the right one can potentially save you thousands of dollars and might even put you in a situation where early repayment is on the cards. When deciding on the home loan that’s most appropriate for your situation, you’ll need to factor much more into your decision than just the cost of the interest and comparison rates. Keep in mind: comparison rates can help you weigh up different home loan options so you can estimate the true cost – they're not 100 per cent accurate, but you can definitely use them to guide your decision. So when looking at comparison rates, you’ll need to think about whether you have extra costs and fees to add into the mix – as this will slightly alter the cost of your loan. You can see which fees and costs are included (and not included) in comparison rates below. On top of that, while a comparison rate gives you more context than just comparing interest rates, it’s important to know it doesn’t cover all costs and fees that may be associated with a home loan. The average mortgage size in Australia is much higher than $150,000 and your loan term may be longer or shorter than 25 years. The rates are defined by legislation and calculated on a loan of $150,000 over a 25-year term – not your personal situation. One important thing to remember about comparison rates: they should be used as a guide – not gospel. Something to keep in mind about comparison ratesĬomparison rates were created by the Australian government to offer more transparency to people shopping the home loan market. It’s the simplest way to understand the true cost of a loan and find out which loan will be the best value over time. On the other hand, a comparison rate includes an estimate of the fees and charges as well as the interest charges of the mortgage, so you can compare the true cost of different loans more easily. They’re a good tool to help you understand how the cost of one loan might compare to another, so you can choose the right home loan for your circumstances.Īn interest rate can be used to work out how much the interest charges on your mortgage may be. Loan interest rates and comparison rates allow you to compare home loans in the market on a fairly even footing. Why are interest rate and comparison rates important? If the comparison rate is similar to the interest rate, this may suggest there are minimal additional fees and charges to factor in to the overall cost of the loan. If the comparison rate is a lot higher than the interest rate, this may suggest there are some significant ongoing costs attached to the mortgage apart from interest charges. For that reason, the comparison rate is generally higher than the interest rate, because it gives a more realistic picture of additional costs, such as: As the ‘headline rate’ (interest rate) doesn’t always give the full picture of costs attached to a home loan, the comparison rate attempts to take these additional costs of the loan into account - giving you an idea of the true cost of a loan. Comparison ratesĪ comparison rate is really helpful when comparing different loan products and offers. Westpac has a range of online calculators that can help you run the numbers on your home loan. The interest rate is referred to as the ‘headline rate’ in some contexts.įor example, if you borrow $300,000 for a home loan over 30 years with an interest rate of 3%, you will pay roughly $155,332 in interest to your bank over the life of the loan. The amount you’ll pay in loan interest is calculated as a yearly percentage of the total amount borrowed. The lender will charge you ongoing interest on the funds you are repaying – known as the interest rate. When you buy a home, you’ll most likely need to borrow money from a bank to pay for the property. But what’s the difference? Interest rates It’s really important to have a good understanding of how much a loan could cost you compared to other loans, and what’s the most appropriate loan type and rate for you.Īn interest rate and comparison rate often sit side-by-side and appear to be quite similar. When shopping around for a home loan product, you want to do your due diligence. What’s the difference between an interest rate and a comparison rate?
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