About Credit Comparison Rates - CCR

The Credit Comparison Rate is a very important money saving tool when you are selecting the right mortgage loan.

Did you know that the annual percentage you pay is only part of the cost of a home loan? There are also a number of "hidden" costs you need to be aware of when comparing products. Knowing these "hidden" costs will help you make a smarter choice of home loans. Although interest rates do play a major role in the cost of your home loan, upfront and ongoing fees also have an impact.

The Comparison Rate is an independent calculation taking into account the advertised rate, as well as upfront fees and charges over a twenty-five year loan period.

The Comparison Rate reveals the raft of fees and charges hidden in the fine print, enabling borrowers to compare loans when making important mortgage decisions.

Comparison Rates have been mandatory in the United States for decades, while Australian banks dragged their feet on this important consumer protection issue right up to the finishing line.


The benefits of Comparison Rates for borrowers?

Comparison Rates help borrowers compare the true cost of home loan offers when shopping for the best deal. The advertised rate is not a fair comparison. The Comparison Rate uses a common formula to include upfront fees and charges as well as the advertised rate.

The Comparison Rate takes the confusion out of home loan offers and exposes the impact of honeymoon rates and fees and charges on the total cost.

There has been an explosion of fees and charges, especially on home loans. With the mandatory Comparison Rate consumers should not be taken by surprise with fees and charges hidden in the small print.

In Australia the Comparison Rate has to be published when a fixed term credit is provided and must be displayed before consumers formally apply for a loan.

What is the Comparison Rate?

It is a calculation that takes into account the advertised interest rate as well as the upfront fees and charges and represents them as one easy to compare interest rate. Under the new law, loans affected are fixed term primarily for personal, domestic or household use. The Comparison Rate formula will be commonly based on a loan of $150,000 over a 25-year period.

It is compulsory for all financial institutions to publish the Comparison Rate in all advertising effective from 1st July 2003.

A reputable mortgage broker welcomes this law which applies to print, radio and television advertising and will provide the information on its website. The Comparison rate will be a great help to consumers in taking some of the complexity out of home loan finance.

We recommend that you seek reliable assistance when selecting your loan even though the comparison rate makes it easier. There are a huge diversity of products available. - please consult with several mortgage brokers and your bank to help you make a wise choice and clear the complexities.

What does the warning accompanying a Credit Comparison Rate mean?

The warning advises consumers that the Comparison Rate is accurate only for the particular loan amount and term on which it is based, as different amounts and terms will produce different Comparison Rates.

The warning also advises consumers of the limitations of Comparison Rates, by noting that:

  • as a Comparison Rate does not include government fees and charges or fees and charges which are only charged in certain circumstances, it may not provide a complete picture of the total cost of a loan;
  • a Comparison Rate does not take into account some factors which may make a loan more attractive, such as fee free banking, a waiver on certain charges, additional services or flexible repayment arrangements.

The warning is intended to make consumers aware that, while a Comparison Rate can be a useful tool for comparing the cost of different loans, it is important to consider all of a loan's features and not just focus on the Comparison Rate.



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