A key indicator of the actual cost of your mortgage

People shopping around for home loans could be missing out on the best deal because they don’t understand or don’t even know about a key indicator of the actual cost of a mortgage – loan comparison rate.

A loan comparison rate is an important tool for people to compare lenders on an even playing field: it includes loan fees and charges as well as the interest rate.

Almost half of the people surveyed in the latest CUA National Mortgage Survey gave the wrong answer when asked what a comparison rate is, while an additional 28 per cent did not know at all.

But despite financial institutions being required to display a comparison rate, the CUA survey found many people aren’t taking advantage of the information.

“Property buyers need to be careful that what looks like a very low rate doesn’t actually have lots of nasty hidden fees and charges,” CUA Chief Operating Officer Member Services Andy Rigg said.

People who have loans with the big four banks are less likely to know what a comparison rate is compared to those who have their home loans outside the big four, the survey found.

Almost two-thirds of home owners still have their loans with the big four and are twice as likely to have switched mortgage providers in the past six months compared to non-big customers.

More home owners are also considering switching from a variable to a fixed rate loan, the survey found, although the proportion of mortgage holders planning to fix in the next six months was steady at 16 per cent.

“The current low-interest rate environment is clearly encouraging some home owners to consider locking in these lower mortgage repayments for the next few years,” Mr Rigg said.

For those who don’t have mortgages, only one in seven are confident they will be able to buy a property in the future.

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