Truth Behind Comparison Rate
Money Magazine Australia|May 2018

The widely used number is becoming outdated and needs to be refined

Effie Zahos
Truth Behind Comparison Rate

There’s a home loan that’s advertised for 3.69% and another for 3.52%. Which do you choose? Savvy shoppers know that aside from looking at features you should never compare loans based on their advertised rates but rather their comparison rates. The problem with this, though, is that some experts are now suggesting that comparison rates may have passed their use-by date.

Vincent Turner, CEO of online mortgage broker Uno Home Loans, says comparison rates, while noble in their intention, don’t accurately demonstrate the true cost of a loan to the consumer. “The main reasons for this are that comparison rates are calculated using a loan value of $150,000 – significantly less than the value of the average Australian mortgage – and are always calculated across a 25-year term.”

By law lenders must show you the comparison rate. The figure typically includes the interest rate as well as most upfront and ongoing fees and charges.

Whatever its shortcomings, it does help customers identify the true cost of a loan. As an example, a loan with an advertised rate of just 3.74% and no establishment fee could have a comparison rate of 4.06% because of an ongoing annual fee and a discharge documentation fee.

This story is from the May 2018 edition of Money Magazine Australia.

Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.

This story is from the May 2018 edition of Money Magazine Australia.

Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.

MORE STORIES FROM MONEY MAGAZINE AUSTRALIAView All
An outrageous, beautiful monopoly
Money Magazine Australia

An outrageous, beautiful monopoly

Telstra's mobile business is a cash machine with few competitors, giving it the highest returns in the world.

time-read
4 mins  |
July 2024
Drop the anchor to judge value
Money Magazine Australia

Drop the anchor to judge value

Buying and selling decisions should be based on where a stock price is going, not where it has been.

time-read
3 mins  |
July 2024
Powering the AI boom
Money Magazine Australia

Powering the AI boom

Beyond the software and chipmakers, where will the energy come from?

time-read
3 mins  |
July 2024
Get into life
Money Magazine Australia

Get into life

Tucked inside super are products that can protect you from life's inevitable uncertainties.

time-read
5 mins  |
July 2024
Paths to home ownership
Money Magazine Australia

Paths to home ownership

Taking the road less travelled can sometimes deliver unexpected benefits.

time-read
5 mins  |
July 2024
Sold! Quick ways to add value
Money Magazine Australia

Sold! Quick ways to add value

Small, strategic changes can have a big impact on the look and feel of your home. And get you a better price on auction day.

time-read
5 mins  |
July 2024
Money lessons the kids need to know
Money Magazine Australia

Money lessons the kids need to know

Your children can learn a lot from your past money mishaps. Here are eight financial conversations I have had with mine.

time-read
4 mins  |
July 2024
Property-investing rules: are they likely to change?
Money Magazine Australia

Property-investing rules: are they likely to change?

The pressure for the government to curb the tax benefits of tax concessions, such as negative gearing and the capital gains tax discount, is unrelenting. Most recently, independent senators David Pocock and Jacqui Lambie proposed five options for paring back investment property tax concessions, with savings to the Federal budget of up to $60 billion over the next decade.

time-read
3 mins  |
July 2024
What's love got to do with it?
Money Magazine Australia

What's love got to do with it?

A rollercoaster of emotions could be driving poor crypto behaviour.

time-read
3 mins  |
July 2024
Are we ready to be cash-free?
Money Magazine Australia

Are we ready to be cash-free?

Saying goodbye to our piggy banks too soon could leave small businesses in the dark when problems arise.

time-read
2 mins  |
July 2024