Why iChoice Hates Comparison Rates
There are 2 ridiculous things about making decisions based on the ASIC-invented Comparison Rate.
Comparison Rates (while well-intentioned) are just ridiculous. I will continue lobbying to ASIC for their removal on the basis that they just aren’t giving Australians enough credit (pardon the pun).
A Comparison Rate (CR) is a made-up, notional rate that tries to include certain fees into the actual interest rate, in a child-like attempt to estimate the true cost of a loan. Kind of like a car salesman giving you a price on a car that wraps up their estimate of fuel and repairs in the next few years…
If you have a mortgage you’re probably paying a monthly fee or a “Package” of between $120 and $395 pa. For a $600,000 mortgage, a $395 annual fee represents only 0.06% on top of the rate.
So why the big difference between the actual & Comparison rates? Mainly, because advertised comparison rates are based on a $150,000 loan. Sure, on a small loan like that the annual fee represents 0.26% – which is why a ‘packaged’ product may not be recommended for such a small loan!
Furthermore, doesn’t a Package also provide a free Platinum credit card? And dual offset accounts at no cost? Are these savings included in the CR? No.
Let us provide you with some clarity. The true costs of a loan are all pretty much wrapped up 3 questions you need to ask your mortgage broker Sydney agent:
- SET UP COSTS: “what is the total cost, to the cent, to set up this loan / refinance? Is there a rebate?
- ONGOING FEES: “what are the ongoing annual (or monthly) fees?
- RATE: “including any lifetime discount, what is the actual rate please”
Let’s finally get rid of Comparison Rates as there are some suckers out there relying on them to make their decisions.
Ask your broker for a 10-Year Cost Comparison Projection taking the 3 things above into account. Ten years will iron out any initial rebate, discounted first-year rate, and all that nonsense.