What is a comparison rate?
A comparison rate indicates the true cost of taking on a home loan.
It gives you a more accurate representation of the interest rate as fees and charges (annual fees, valuation fees, established fees, etc.) are factored in.
All lenders, by law, should display a comparison rate along with their advertised rates.
What is the rate after the fixed rate ends?
When the fixed rate ends then most lenders have their system set up so that the loan reverts to the bank standard variable rate automatically. That is their standard rate with no discount.
The reason lenders do this is because most people pay little attention to their mortgage at the expiry of their fixed rate, so they can overcharge them without them noticing.
The comparison rate looks at the cost of the loan over 25 years and so the higher revert rate is shown by a high comparison rate.
Does a professional package affect this?
If you choose a professional package then you should get a small discount of 0.15% to 0.20% off of your fixed rate loan. In addition to this, you should get a significant discount, often over 1.00%, for any part of the loan on a variable rate.
When the fixed rate ends you should revert to the discounted variable rate however often banks don’t give you the same discount that they normally would, typically 0.6% below the bank standard variable rate.
Does this affect which lender I should choose?
Yes and no. If you are proactive and are willing to negotiate or refinance at the end of the fixed rate term then it doesn’t matter too much.
If you want to stay with the lender for the long term then you can ask them what interest rate your loan will rever to at the end of the fixed rate and take this into account when deciding which bank to apply with.
How can I protect myself from a high revert rate?
If you are using a mortgage broker then they should monitor the expiry of your fixed rate and automatically reprice your loan when the fixed rate expires. If your bank doesn’t negotiate at that time then they’ll assist you to refinance.
If you aren’t using a mortgage broker then you can set a reminder in your diary for the day your fixed rate expires and then shop around to get a better deal. If your lender won’t match the best on the market then you can refinance.
Some people choose to refix their loan instead of refinancing however you should be careful as the fixed rates will likely have changes and so you should still shop around to see what is out there.
Call us at 1300 889 743 or fill in our free assessment form to get connected with our award-winning mortgage brokers.
Why do lenders rip off their existing customers?
Fixed rates often have a very low margin for lenders due to competition. As they don’t make much money during the fixed period they rely on customers being reverted to a high rate later to make up for this.
Some lenders have a customer-centric approach or are customer-owned and act in the interests of their customers. Regardless, it pays to be wary and to regularly check your interest rate to see if it’s competitive.
We have a panel of over 40 lenders, and know the lending policies of each of them. Our mortgage brokers can assess your situation and get you the best deal on your home loan.
Call us at 1300 889 743 or fill in our free assessment form.