Very Important information when selecting a Home Loan

You may be offered a brilliant advertised cheap home loan deal at 5% per annum, however, always insist on seeing the "Comparison Interest Rate"

Comparison Interest Rates take into account the actual cost of the money you borrow including deferred establishment fees, application fees, valuation fees, lender's legal costs, monthly or annual account keeping fees.

Selecting a low interest rate home loan could actually cost you more than if you were to select a higher advertised rate home loan.

Example:

Advertisement 5% Home Loan with NO Establishment Fees

or

5% Home Loan with NO Account Keeping Fees

but when you look at their comparison rate you will see that on a $200K loan over 5 years the comparison rate may be 12.5% and for the same loan over 25 years, the comparison interest rate may be 8.01%

What this means is that on cheap home loan of 5% ........

$200K Loan over 5 years @ Comparison Rate of 12.5% you will pay the lender

approximately $69,975 in interest, penalties, fees and charges

or

$200K Loan over 25 years @ Comparison Rate of 8.1% you will pay the lender

approximately $263,488 in interest, penalties, fees and charges

**** HOWEVER ****

If as an example you were to take a loan that had an advertised interest rate of 7% with a 5 year comparison rate of 10.5% and a 25 year comparison rate of 7.9%

the result could be quite different....

$200K Loan over 5 years @ Comparison Rate of 10.5% you will pay the lender

approximately $57,926 in interest, penalties, fees and charges

or

$200K Loan over 25 years @ Comparison Rate of 7.9% you will pay the lender

approximately $259,123 in interest, penalties, fees and charges

Here you can see that selecting the low interest rate home loan of 5%, it is actually a more expensive option than if you had selected the 7% interest rate home loan.