How to tell if there are hidden fees in your home loan – check the comparison rate.
Hidden fees. Would you like to know a sure-fire way to discover them when looking at a home loan? The simplest way is to check the comparison rate. If you’ve ever wondered what that is and what it means, here are the five reasons you should pay attention to it so that you avoid hidden fees and save on your next home loan.
What is the comparison rate?
You will be familiar with the home loan interest rate. It’s the percentage rate that will be charged on the outstanding monthly balance on your home loan. Next to it, you will see the comparison rate. This rate incorporates other fees and charges that will be added to the home loan interest rate you are paying. If the comparison rate is significantly higher than the home loan rate, it’s here you’ll find hidden fees and charges, that could really add up on the actual amount you pay. Conversely, if the comparison rate is very close to the home loan rate, then any additional fees or charges will be minimal – saving you money.
Why have a comparison rate at all?
The comparison rate is there to give you a fairer picture of everything you may be paying on your home loan. It was introduced in July 2003, so that lenders didn’t just show the lowest rate, but gave a fairer indication of all the charges involved.
What does the comparison rate include?
You will find the comparison rate is based on a home loan of $150,000 over 25 years. It takes the following fees and charges into account: the loan amount of $150,000, the term of 25 years, the interest rate, your repayment frequency, any establishment fee, valuation fee, monthly account fee, annual fee, mortgage document fee, or settlement fee. All these can soon add up, so always look for a comparison rate as close to the home loan rate as possible.
What does it not include?
There are also other fees that aren’t included but may be charged by different lenders, so it’s always worth asking about: redraw fees, late payment fees or break fees in fixed rate home loans. Depending on your situation and the flexibility you want, these are fees you should at the very least be aware of.
What do you want from a home loan?
Ultimately the home loan you choose should be the right one for you. When you are comparing loans, look at what is offered to you and included with the rate and what you have to pay for. For example, the ability to have the flexibility to redraw from your home loan may be a big one for you. You may weigh up if you’re happy to have that for free with a slightly higher rate or pay a small fee for when you need to redraw and have a lower rate.
With many options available to you, with regard to your home loan and its flexibility, there’s a lot to consider. However, one of the most important items is the comparison rate, since it gives you a closer indication to the real interest rate and other charges you may be paying over the life of the loan. With that, every percentage point higher in interest means you will be paying more or potentially taking longer to pay off your loan.
If you are interested in seeing how much you could save with a new home loan, or comparing your current home loan, see what we offer with HSBC home loans.
Credit provided by HSBC Bank Australia Limited ABN 48 006 434 162 AFSL/Australian Credit Licence 232595. Terms, conditions, fees, charges and lending criteria apply to HSBC home loans. Visit hsbc.com.au for more information.