Understanding The True Cost Of Your Mortgage

The Importance of Comparison Rates
You certainly want a compelling interest rate, but a comparison is where you’ll see the real costs you will encounter.

A comparison rate is an estimate of how much your mortgage will cost each year when ongoing fees and charges are added to the interest you’ll pay. It’s a legal requirement for lenders to show this beside a product’s interest rate and is expressed as an annual percentage.

Product Comparison
2 Year Fixed $1,500,000 Mortgage Over 25 Years
Fixed Interest RateComparison RateInitial Monthly RepaymentTotal RepaymentsLoan TermCurrent Revert Rate
Mortgage Product A
2 Years3.09%3.57% $7,217$2,273,43325 Years3.62%
Mortgage Product B
2 Years3.09%3.01%$7,184$2,135,13825 Years 2.99%
Mortgage Product A
Fixed Period2 Years
Fixed Interest Rate3.09%
Comparison Rate3.57%
Initial Monthly Repayment$7,217
Total Repayments$2,273,433
Loan Term25 Years
Current Revert Rate3.62%
Mortgage Product B
Fixed Period2 Years
Fixed Interest Rate3.09%
Comparison Rate3.01%
Initial Monthly Repayment$7,184
Total Repayments$2,135,138
Loan Term25 Years
Current Revert Rate2.99%

As you can see, the same advertised rate does not necessarily mean two products will end up costing you the same amount in interest. While it doesn’t necessarily include fees of added extras to your mortgage, like offset accounts, a comparison rate gives you a truer indication of the cost of your mortgage by combining additional charges into a single percentage. Once you’ve found a product you’re happy with, it’s important to think about these other aspects of refinancing before you lodge an application:

What seem like minuscule shifts in percentages between lenders can end up a large sum in the long run – how much can 0.5% save you?

Balance the costs from your outgoing and incoming lenders, as well as government charges, against the potential savings.

Speed up your application by ensuring you have personal and financial documentation available for your new lender to assess.

Understand the current property market and its effect on the LVR of your property – it could earn you a discounted rate.

Be aware of the different sorts of refinance and what will help you achieve your goals and suit your financial situation.

There can be a lot to be across when refinancing. A credit advisor is your best resource to help you will all of these steps.