- Posted By Craig Wieckhorst
Ever since the rate dropped, you may have seen a lot of Bank ads with a rate of 1.99% and a comparison rate of 3.28%,
And Wondered, how does that work? Am I paying 3.28%? What rate am I exactly paying?
Let start by defining what a Comparison Rate is.
A Comparison rate is designed to outline the overall costs of a loan based on a few different factors such as:
· Loan amount
· Interest rate
· Fees & Charges
· Loan term & frequency
All of these factors are accounted for on a loan amount above $150,000 over the course of 25 - 30 Years!
This means that if you get a fixed rate loan for 1.99% fixed for 4 years, After the fixed rate finishes, the rate becomes a variable, for the remaining 26 years. If you ride the whole remaining 26 years with the same bank, you are expected to average out paying what the comparison rate that you see advertised.
So, is Comparison Rates true?
The short answer is yes. (IF YOU STAY WITH THE SAME BANK WITH THE SAME LOAN FOR AT LEAST 25 YEARS)
How can I save if the comparison rate is more than the rate, I’m on now?
EASY! all you have to do is refinance (if eligible) to a better deal at the time the fixed rate finishes.
Even if the same bank is to offer you the same rate as the competitors, the loan term is less, so your repayments will be MORE.
WHILE committing to any loans, it’s always good to see what your future needs as well to anticipate which products will be right for you.