A comparison rate includes the interest rate and certain loan fees and charges. Its goal is to assist you in determining the true cost of a loan and comparing loans and services offered by financial institutions and mortgage providers. The Consumer Credit Code governs the formula for calculating a comparison rate, which all Australian financial institutions and mortgage lenders use.

An individual must take the help of the comparison rate calculator to determine the comparison rate by simply entering the values. This guide talks about the free-to-use tool- the comparison rate calculator, and lists the steps to use it and its accuracy.

What is Comparison Rate Calculator?

A comparison rate calculator is an online tool that allows a user to calculate the total value of a loan. This saves them from unsuspecting costs behind the low-interest rates. There are certain fields that a user must enter. It must be noted that several factors can influence the results displayed by the calculator. For instance, the calculator has three assumptions: loan amount, fees and loan term. A series of costs are excluded from the comparison rate calculator that may be charged by the lender, for example, stamp duty, mortgage registration fees, loan variation fees, transaction fees etc.

How does UM Oceania's Comparison Rate Calculator work?

UM Oceania makes the comparison rate calculation easy and convenient by providing the comparison rate calculator. The calculator prompts the user to enter values in the following fields.

  • Loan Amount: The amount of loan taken
  • Loan Term: Number of years for which the loan is sanctioned
  • Intro Interest Rate: The rate of interest charged during the intro term
  • Intro Term: The initial stage of the loan
  • Standard or Revert Rate: The variable rate of interest charged after the end of the fixed rate period
  • Upfront Fees: The amount paid to the lender at the time of taking the loan
  • Ongoing Fees: Any regular fees charged by the lender
  • End Fees: Any fees charged on the ending or refinancing of a loan

How To Use The Comparison Rate Calculator?

The steps to be followed to use UM Oceania’s comparison rate calculator are below.

  • Visit the official website of UM Oceania.
  • On the top panel of the page, hover your cursor over the ‘Calculator’ option and choose the ‘Comparison Rate Calculator’ option.
  • Enter the correct information in the respective fields
  • The calculator page will display the comparison rate, intro monthly repayment, revert monthly repayment, total interest payable, fees payable and total payments.

Features and Benefits of Comparison Rate Calculator

The comparison rate calculator has the following features and benefits.

  • This free tool can be used multiple times.
  • It can be operated from the comfort of your home since it is available online.
  • Users can use its results to compare, analyse, and choose the best-suited lender.
  • A comparison rate calculator is easy to use
  • The calculator assists the user in managing their budget accordingly and formulating various strategies to achieve financial obligations.
  • The results are displayed in merely seconds

How Is The Comparison Rate Calculated?

The comparison rate calculation is a tedious task. Therefore, it is convenient for an individual to use the comparison rate calculator. Theoretically, the formula for calculating the comparison rate is:

Comparison Rate = Interest Rate + Additional Fees/Charges

The lenders typically charge three types of fees - upfront fees, ongoing fees and discharge/end fees. The user will notice that the comparison rate is higher than the interest rate, owing to the above-mentioned charges. The users are likely to get an accurate result if they know the fees and charges that are not to be included in the calculation of the comparison rate.

A home loan comparison rate calculator assumes the following:

  • A loan amount of $150,000
  • A loan term of 25 years
  • Principal and interest repayment

Why Does The Comparison Rate Matter?

A comparison rate is a good calculation to ensure the loan with a low-interest rate does not end up costing more in terms of other loan-related fees and charges. This rate is important because it can indicate whether a loan is a good value for money or not, as it indicates whether a loan has any large fees that are not immediately apparent. As per the norms of the Australian government, every lender, banks and non-banks have to advertise home loan comparison rate along with the offered interest rates.

Holistically, it is a good thing that lenders have to do this because it allows a borrower to compare different home loans from different companies on an equal footing. Credit providers set their own interest rates, so it's critical to understand what you're getting before approaching them for a loan.

How Accurate Is The Comparison Rate Calculator?

A comparison rate provides its user with a vision of the cost of the loan. However, it cannot give you an exact estimate of your home loan's total cost. This is partly because the assumptions used to calculate a comparison rate may not correspond to the facts of your home loan.

The concept of comparison rate was introduced in 2003 when the average loan size was $150,000, and the repayment tenure was 25 years. Over the years, real estate price has touched the sky like Shahid Afridi’s 153m long six. Therefore, the comparison rate might not be a true reflection of the actual costs of your loan. Changing a loan's terms or length can have a significant impact on its comparison rate.

In light of this, it may be beneficial to calculate your own comparative rate for the lenders you are considering using the anticipated loan amount. The advertised comparison rate for house loans might be a helpful tool, but if you don't take the time to look a bit further, you might end up spending thousands more.

Frequently Asked Questions

What is a comparison rate?

A comparison rate is calculated to get the true cost of the loan. It includes the rate of interest and the costs incurred at the time of availing of the loan. An individual can take the help of UM Oceania’s comparison rate calculator to get an accurate result.

Is the comparison rate misleading?

According to experts, comparison rates are misleading and can confuse borrowers. However, for some, a comparison rate is a good tool to know the cost of the loan.

What is the difference between a comparison rate and an interest rate?

The most important difference between a comparison rate and an interest rate is that the comparison rate includes both the interest rate and the accompanied costs of the loan. In contrast, the interest rate is the amount charged by the lender for the borrowed amount.

What is a comparison rate example?

The comparison rate can be better understood with an example. For instance, lender A has an interest rate of 4.40% pa and charges additional fees of 2% pa; then the comparison rate totals 6.40% pa. On the other hand, lender B has an interest rate of 5% pa and charges additional fees of 0.8% pa; then the comparison rate totals 5.80% pa. Regarding interest rate, lender A is the optimum choice; however, the accompanied costs are too high. According to the comparison rate, lender B is the most suited option.


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