Mortgage Comparison Rate to Get the Best Home Loan
While taking a home loan, you are often advised to compare the interest rate. But what is this mortgage comparison rate? And still more important question – how can you get help of it in getting a better deal for your home loan?
Lenders are bound by law to give a comparison rate while advertising home loan rates, but in the marketplace of mortgages, comparison rates are usually misunderstood among borrowers.
Basically, a comparison rate is a tool to help borrowers recognize the real cost of a loan, according to financial broker Kafie Toole of MoneyToday. She says that it includes both the interest rate and the charges and fees associated to a loan, put together as a single percentage figure.
Most of the people only use the loan interest rate to compare various loans. Though this can be a good start, it doesn’t consider other costs like approval fees, establishment fees, or any ongoing or upfront fees which comprise the general cost of a loan.
A comparison rate is made of:
- The amount of loan
- The term
- The interest
- The repayment frequency
- The charges and fees associated with the loan
As told by Toole, a comparison rate is a helpful tool for consumers to compare the cost of various loans, but she also clarifies that it is important to take all the features of a loan into consideration, and not simply focus on the comparison rate.
The amount and term of the loan shown on a comparison rate schedule don’t symbolize all of the potential combinations of amounts and terms, which means that the amount and term of your specific loan might not be involved in the comparison rate schedule.
For instance, you may find an advertisement of loan as: variable interest rate 6.95% and comparison rate 7.28% – for a loan of $150,000 for 25 years. While this comparison rate tells the true cost of the loan taken as example, a completely different value will apply for a loan of $400,000, or if the term is 30 years.
To get a good idea of the comparison rate which applies to your particular loan, it is better to take a look at the comparison rate given for the amount and term that matches your loan amount and term to the closest. If you are in a doubt, don’t hesitate to ask your lender or broker to assist you find out the comparison rate of a loan which suits your particular situation.