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Your mortgage interest rate might be higher than you think

Your mortgage interest rate might be higher than you think

Some of Australia’s cheapest home loan rates are more expensive than they initially seem, a new analysis of variable home loans has found.

RateCity has identified a range of variable mortgage loans that have very low advertised rates but significantly higher comparison rates (see table below).

The comparison rate is often regarded as the ‘real’ cost of a home loan, because it not only includes the advertised interest rate but also most fees – which can add up to thousands of dollars over the life of a mortgage.

Online Home Loans currently has one of the cheapest mortgage loans in Australia, with its Horizon Home Loan priced at 3.54 per cent. However, the comparison rate is 3.86 per cent – a gap of 0.32 percentage points.

Online Home Loans charges an establishment fee of $275 and an annual fee of $299, which means borrowers would have to pay $9,245 in fees over the life of a 30-year home loan.

ME Bank has a gap of 0.42 percentage points for its Member Package Flexible Home Loan – an advertised interest rate of 3.69 per cent and a comparison rate of 4.11 per cent.

This mortgage loan doesn’t have an establishment fee, but it does include a $395 annual fee, which would add up to $11,850 after 30 years.

LenderProductAdvertised rateComparison rateGap
Online Home LoansHorizon Home Loan3.54%3.86%0.32%
Bank of SydneyExpect More Home Loan Package3.58%3.99%0.41%
Auswide BankFreedom Package Home Loan Plus Discount Variable3.59%3.99%0.40%
People’s Choice Credit UnionPackage Variable Home Loan3.59%3.99%0.40%
INGOrange Advantage3.68%4.00%0.32%
ME BankMember Package Flexible Home Loan3.69%4.11%0.42%
Greater BankUltimate Variable Home Loan3.74%4.12%0.38%
Gateway BankPremium Package Home Loan3.74%4.06%0.32%
Suncorp BankHome Package Plus Personal Variable Special3.79%4.18%0.39%
Australian UnityHealth, Wealth & Happiness Package Home Loan3.84%4.23%0.39%
Bank FirstPremier Package Home Loan3.89%4.26%0.37%
Northern Inland Credit UnionDream Value Package Home Loan3.94%4.29%0.35%

Please note that the comparison rate is based on a $150,000 loan over 25 years, so the figure might be slightly inaccurate for mortgages that are of a different size or have a different loan term.

Also, the cheapest home loan isn’t always the best home loan for a particular borrower.

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This article was reviewed by Head of Public Relations Laine Gordon before it was published as part of RateCity's Fact Check process.

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