Adulting: Interest and Comparison Rates

If you wanted to buy a house, getting a home loan is the number one way to go about it. There are very few people who can pay for a house upfront. Well done to those who can. However, let’s be realistic here. Most of us struggle to put enough away for a deposit let alone put enough away to purchase a house outright.

If you have got enough money together and are ready to look for a bank to take out a loan with then you are probably shopping around for the best interest rates. You’ll notice that there is an interest rate advertised in big, bold letters and then another which is comparatively sized as fine print. That big, bold interest rate might look enticing but it’s the little one tucked away to the side that you’ve got to actually pay attention to. This is called a Comparison Rate.

The big, bold interest rate indicates how much interest you’ll pay on the loan amount. The Comparison Rate shows the true cost of the loan. This is because most banks will apply any fees and charges to the loan and apply interest to them as well. So when looking for a home loan you need to look at both. Ideally a Comparison Rate should be of a very similar number to the interest rate. Smaller banks like Bendigo Bank are more likely to have interest rates and Comparative Rates that are similar. Bigger banks, like Westpac, the number can differ quite a lot. It might not look like much when comparing the columns now, but the long-running impact of the difference could determine how quickly you can pay the debt off and if you can afford that debt at all.

Using a website like Canstar can be useful in narrowing down a home loan that is right for you. Avoid being fooled by fancy interest rates and feel-good advertisements because at the end of the day it’s the terms of your loan and the Comparison Rates that can make or break your dream.