What is Real Time Ratings™?
Real Time RatingsTMis a world-first rating system that ranks home loans based on your individual mortgage requirements.
Real Time RatingsTMassesses the home loans in our database to give them a score out of five, based on key criteria such as interest rate, fees and the flexibility of the loan. It also factors in your loan size, deposit amount and borrowing type so you don’t waste time looking at loans that aren’t applicable to you.
Unlike other home loan rating systems that grade their products once or twice a year, Real Time RatingsTMscores are calculated when you use the site.
We do this so you have the most up-to-date assessment of the home loan market at your disposal to help you make an informed choice.
How we calculate Real Time Ratings™
Real Time RatingsTManalyses almost 4,000 offers from over 100 lenders and gives you a score out of five, based on how much the loans cost and how much flexibility offered. The ratings are updated based on the latest loan information as well as your preferences.
Loan cost is calculated by looking at the interest rates and fees that apply to your loan amount. The flexibility score looks at whether the loan offers features, such as offset account, redraw facility and extra repayments, in comparison to other loans.
Together they make up the score out of five so you can easily compare products without having to read the fine print of each mortgage on the market.
To assess the cost of the loan, we start with someone’s loan amount – the biggest factor in the cost of a loan. We then calculate their monthly repayments. For fixed loans, we look at the revert rate when the fixed period expires. For example, on a two-year fixed loan, we look at the monthly repayments for a period of two years, then we calculate what the repayments would be for the remaining three years when it reverts to the relevant variable rate.
We then add in the upfront and ongoing fees and end of loan fees, to work out the total cost over five years.Finally, we convert this to an average monthly cost over five years, which takes into account the repayments and the fees. For bigger loans, the fees are a smaller proportion of the cost.
Real Time Ratings™ factors this in by assessing the rating on your specified loan amount to help you put fees in the context of the overall cost of the loan and make a more informed decision.
We rank flexibility by assigning points to a range of loan features, such as offset accounts, redraw facilities and extra repayments. The points reflect the relative importance of these features, based on consumer research, analysis of what lenders are offering, feedback with brokers and expert opinion.
A lower score of 1-2 out of 5 would generally be missing some of the key features. Extra repayments were identified by our experts as one of the fundamental flexibility features and, accordingly, loans that don’t offer this will rarely get a score higher than 3. Meanwhile, without a full offset account, it’s unlikely a loan will get a score above 3. A score of 4 or above will have all of these features and a range of others such as unlimited extra repayments, but it may not necessarily have repayment holidays, because they’ve been identified by our panel of experts as features borrowers don’t value as highly.
Fixed loans will generally score lower than variable rate loans in flexibility because they often lack flexible features, such as the ability to make extra repayments.
What makes Real Time Ratings™ unique?
We came up with Real Time Ratings™ because the home loan market has changed. The two big changes are bigger mortgages and new deals are being released by lenders at a more frequent pace. As such, legacy ratings methodologies were no longer relevant to the consumer.
Loans are bigger
In the year 2000, the national average loan size was $140,000, according to the Australian Bureau of Statistics. In November 2016, it was over $370,000. But the reality is, many borrowers have loans much bigger than that, especially in NSW. What this means is the bigger your loan is, the less significant the fees become when assessing the overall cost of your loan. For example, on a $150,000 loan, choosing a home loan with a rate of 3.7 per cent, but a $400 annual fee, would leave you $195 worse off each year, compared to one with a 3.9 per cent interest rate but no annual fee. However, on an $800,000 loan, even after the $400 annual fee, you’d be $690 better off on the loan with the lower rate and fee.
Borrowers switch or upgrade more often
While comparison rates look at the effective cost of a $150,000 loan kept for a full 25-years, the typical mortgage holder will take a 30-year loan and keep it for three to five years, according to industry experts and brokers. Real Time Ratings™ looks at the cost of a 30-year loan kept for five years to give a more representative view of a loan’s cost.
Deals are released more frequently
The combination of tightened lending criteria and a competitive lending environment also means lenders are constantly changing the offers they have in market. We’ve created a way to benchmark these new deals against the rest of the marketwithin a few days of their launch.
Real Time Ratings™ Case Studies
The following hypothetical examples show how Real Time Ratings™ can help a variety of different borrowers find the right loan for them.
Olivia – the first home buyer
Olivia and her fiancé are planning to buy their first home. They’ve saved up $60,000 for a deposit, and Olivia’s parents are helping them out by matching this amount. However, even with a $120,000 deposit and a combined income of $160,000, when you consider the couple’s $6000 credit card and monthly expenses of $3500, their plan to borrow $610,000 to buy a house is likely to put a fair amount of pressure on their finances.
Olivia’s priority when visiting a comparison website is to find the most affordable home loans possible. After entering her details, she sorts the list of results from the lowest advertised interest rate to the highest, narrowing down her shortlist to only the cheapest options.
However, because lenders charge fees as well as interest on their home loans, these advertised interest rates alone don’t tell Olivia which home loans will be the most affordable overall. She could sort the loans by Comparison Rate, as this percentage combines each loan’s interest rate with its standard fees and charges. But while this is useful for making approximate comparisons between different loans, it doesn’t help Olivia to plan her budget or work out which loans she can realistically afford.
Using RateCity’s Real Time Ratings™, Olivia can view estimates of the actual cost of different home loans, measured in dollar values – exactly what she needs to prepare her household’s financial plan! Plus, the Flexibility Score shows which lenders offer features and benefits that add extra value to their home loans, which could influence her final decision.
Karl - the next home buyer
Karl is a self-employed dentist who’s currently paying off an $800,000 mortgage in $4000 monthly instalments. However, since Karl first bought his house, his family has grown (two kids!) and his circumstances have changed, so he’s started looking into selling his current place and upgrading to somewhere bigger.
Even with Karl’s annual income of $300,000, plus around $12,000 of additional annual income from shares and investments, his credit limit of $20,000 and monthly expenses of $10,000 mean that his budget will likely be stretched by the $1 million loan he’s planning for his large new house.
The simplest way for Karl to keep the ongoing costs down on his new loan would be to choose a lender with a low interest rate. Any fees charged by a lender are unlikely to make as much of an impact on Karl’s finances as interest charges on such a large amount of borrowed money. When Karl visits a comparison website, he sorts the list of recommended loans by advertised interest rate, so he can find the loans with the most affordable repayments.
Many of the low-interest loans on Karl’s shortlist are fairly simple and straightforward, and don’t offer a lot of extra features or benefits to borrowers. But because Karl is self-employed with a flexible income, he may find it useful for his home loan to have similarly flexible features, such as offset accounts to help further reduce interest charges, and redraw facilities so he can withdraw his extra repayments if required.
The Flexibility Score from RateCity’s Real Time Ratings™ lets Karl quickly work out which low-rate home loans also include features that will suit his financial situation. Plus, he can compare the estimated actual cost of different loans, rather than making a more general comparison using percentage rates.