A comparison rate is a method of standardising the true cost of a loan. The rate is useful in showing you an estimate of the actual cost of your loan. It includes both the annual percentage rate and the loan fees, allowing you to compare credit providers on an even playing field.
A comparison rate is made up of the following:
• The amount of the loan;
• The term of the loan;
• The repayment frequency;
• The interest rate;
• The fees and charges connected with the loan.
Usually, people use the loan interest rate to compare different loans, and this makes for a great start. However, before deciding to put your signature on a loan, take into account the additional costs that comprise the overall cost of a loan. These include the establishment fees, approval fees, or any upfront or ongoing fees.
We advise you to look at the comparison rate for the loan amount the term closes to the amount versus the term of your loan.
However, if you are having trouble deciding between loans, the best solution is to discuss with your local broker who can assist you in making a decision. They will know what a comparison rate is and how it will affect your loan repayments.
Comparison rate calculated on a $150,000 secured loan over a 25-year term. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
LVR stands for Loan to Value Ratio and is the amount of money you borrow for a home loan compared to the value of the property and expressed as a percentage. Lenders use this calculation to determine the risk factor of the home loan. For example a 80% LVR means that the amount you owe is 80% of what the property is worth. In general speaking, from a lender perspective less than 80% is low risk because if you default on your loan, the sale of the property should more than cover what you owe. On the other hand a 90% LVR is a lot tighter and thus higher risk. This is where the amount you owe is 90% of the value of the property. This definitely represents a higher risk for the lender, which is why they take out an insurance to protect themselves in case you default called Lenders Mortgage Insurance or LMI.