1.99% by Loans.com.au
Last week, I pointed out that fixed rates are at all time lows, with Bank of Us offering fixed rates at 1.99%. But fixed rates are not alone, variable rates have smashed their own records with sub 2% variable rates. The lender, Loans.com.au now offers an introductory variable rate of 1.99%, the new lowest mortgage rate currently on the market. While, Loans.com.au are not the first to offer this rate, they are the first to do so Australia wide and under variable loan terms. Bank of Us, meanwhile has been offering a 1.99% fixed rate but only to Tasmanian homebuyers.
Loans.com.au offers the 1.99% variable rate under its Smart Booster Discount Variable mortgage product. This low rate only applies for the first year of the loan, subsequently increasing to 2.57%. This goes to show how important it is to look beyond the headline rate when shopping around for loans. It might be the case that once you add in package fees, account-keeping fees and other charges, the loans costs you more in the long run than one with a higher rate.
In most instances there are start-up costs, on-going costs and costs to close down the loan. These fees naturally increase the comparison rate which illustrates the true cost of the product. In addition, it is important to consider what benefits the product comes with. Looking at the comparison rates of a mortgage product is an effective way to compare other offers in the market, the comparison rates for loans.com.au’s product, in question here, is 2.56%, a stark contrast from its advertised 1.99%. As such it may not actually be so beneficial to refinance with loans.com.au as you might have initially thought.
What is the difference between interest rates and comparison rates?
The interest rate reflects how much interest you will be charged per year on the balance of your loan. This affects your monthly repayments.
The comparison rate, on the other hand, combines the interest rate plus most fees and charges that come with the loan. This is designed to help you identify the cost of the loan more accurately and make it easier to compare products.
How are comparison rates calculated?
Home loan comparison rates are calculated based on a $150,000 loan, over a 25-year loan term. Comparison rates take into account:
- Interest rate (including any revert rate that applies to the loan after a set period of time)
- Fees and charges (including upfront costs like establishment fees and valuation fees and ongoing costs such as monthly or annual fees)
- Repayment frequency
Understanding the Reference Rate
While the comparison rate provides a better understanding of the total costs involved with a loan, it does not tell the whole story. That is where the reference rate comes in. The reference rate will be in the terms and conditions document and is not legally required to be shown in advertisements. For comparison the initial advertised interest rate for loans.com.au was 1.99%, the legally required comparison rate was 2.57% and the small print reference rate in the terms and conditions is 3.29%.
The terms and conditions of loans.com.au’s product require that a consumer keep their loan the same, meaning that they can not make any variations to their loan without losing their discount, resulting in a change to their interest rate to the reference rate of 3.29%.
How we can help you find right loan for you.
One must consider all the costs and all of the benefits that arise from a particular loan product.
At the end of the day, everyone has different needs, and so we strongly encourage borrowers to consider their circumstances first before applying for a loan or refinancing, as some loan structures only work in certain situations. That’s where we come in at Finance Mutual Australia, we are experts at finding and negotiation the best loan terms to fit your lifestyle and financial needs. Though this particularly loan deal may not be suitable for you, with a difference between the top and bottom rates of 1.2% now could be the right time to reconsider your loan. Work with an expert, contact us today.