What Are Mortgage Comparison Rates

Mortgage Blog
What Are Comparison Rates?
This is an email question from Julie in Inglewood, what are mortgage comparison rates? This is a good question, as it can be confusing when you see an advertised mortgage interest rate, then a comparison rate, which may be lower or higher advertised beside it.
A comparison rate looks at the actual interest rate of the home loan, and then takes into account some fees, like the application fee, possible monthly fees etc. You may see two home loans advertised with the same interest rate, but one of the comparison rates may be higher, as one of the loans may have a higher application fee or monthly fee. Lets look at two examples to see what I mean.
The both examples, we will look at a $100,000 home loan over 25 years, with the interest rate at 7.0%. One home loan will have no application fee, and no monthly fees; the other home loan will have a $700 application fee and a $10 monthly fee.
In example 1, our home loan has an interest rate of 7%, no application fee and no monthly fees over a loan term of 25 years. In this example the comparison home loan rate would be 7%, as there are no other application or monthly fees that would change the comparison rate.
In example 2, our home loan interest rate is still 7%, but there is a $700 application fee, and a $10 monthly fee over a loan term of 25 years. In this example, although the actual home loan interest rate is 7%, the comparison rate would be 7.18% over a loan term of 25 years.
As you can see there is a difference in the actual cost when you look at the comparison rate. Although both home loans have the same interest rate, when you take into account the fees, they are different, home loan 2 in our example is slightly more expensive.
This is a good example of why it is important to compare the actual cost of a home loan you may be interested in. At the moment, there are differences between each bank and lender, so a call to a mortgage broker to compare your current home, may actually save you some money in the end.
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