At
Moneystreet, we understand the difficult and
often daunting decisions people are faced with
when arranging a loan, whether it's for a new
home, an investment property or just comparing
the competitiveness of your existing home loan
with other products and lenders.
Before you can choose a home loan, there are a
number of different issues you'll need to consider
including:
Comparing each lenders interest rates
Comparing the lenders application fees, monthly
charges and any other ongoing costs.
Because these costs can vary between lenders and
loans, it has been difficult to make sure that
you were comparing like with like. Starting from
the 1st of July 2003, all lenders will now be
required to display a comparison rate schedule
(CRS).
What is a comparison rate?
A comparison rate takes into account all interest
and other fees and charges payable during the
life of the loan. These fees and charges include
application fees, monthly fees and any other ongoing
fees. The CRS has been specifically designed to
help you obtain a more comprehensive picture of
what your loan is going to cost you over the life
of the loan.
NB: Government fees and charges or duties are
not included, as these are standard across all
loans irrespective of the credit providers.
While the comparison rate may help you to compare
one loan against another based on cost, the other
features of a loan such as redraw and direct debit
facilities, ATM, internet account access, branch
structures, loan portability and repayment options
which increase the flexibility of your loan and
can make a huge difference to the overall cost
of a loan can not be compared.
Mortgage Insurance or valuation charges if required
Special one-off discounts or possible one off
fee waivers.
Event-based fees or charges which may or may not
apply throughout the life of your loan. Eg. early
repayment fees
How is the comparison
rate calculated?
The comparison rate
is calculated in accordance with a standard formula,
specified by the regulations, which takes into
account:
The amount of the loan
The term of the loan
The repayment frequency
The interest rate
All other fees and charges that can be ascertained
or are connected with the loan except for government
and statutory charges
Will the comparison rate
change if you don't keep the loan for the full
term?
In essence, the comparison
rate will not be accurate and the true cost to
you, the borrower, may be higher than the comparison
rate indicated.
How do I compare one lenders
product using the comparison rate, to that of
another?
It is important to ensure you
compare a product with a like product. Loans with
a low comparison rate may seem attractive but
will have limited additional features, which may
not be suitable for you the borrowers over the
life of the loan. Remember, features such as an
offset or redraw facility will provide you with
much greater flexibility, convenience or cost
savings over the life of the loan.
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