Lender warns of ‘teaser’ rates

As hysteria over record-low rates mounts, the importance of the comparison rate is being significantly downplayed, according to Kim Cannon, managing director of Firstmac, the financial powerhouse behind Loans.com.au.

“One credit union is offering a fixed interest rate of 3.95 percent per annum, which sounds too good to be true and it is,” Mr Cannon said.

“The comparison rate is 5.05 percent,” he said.

Every additional 0.25 percent in interest is worth about $73 a month in higher repayments for a $350,000 home loan. That adds up to an extra $875 each year and potentially more than $26,000 over a 30-year loan term for this loan size, Mr Cannon said.

“So if the difference in the interest rate is more like 1.1 percent, that is about $114,400 in extra interest over the life of the loan,” he said.

“The message is simple – ignore the teaser rate because that’s not what you will pay.

“The true cost of the loan is what the comparison rate will tell you. Over the life of your loan this is likely to add up to many thousands of dollars.”

The Dream Home Loan from Loans.com.au offers a variable interest rate of 4.54 per cent per annum with a comparison rate of 4.56 per cent per annum.

It won Best Value Variable Home Loan and Best Value Full Feature Variable Home Loan categories by online comparison site Mozo.