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Why is a headline rate untrustworthy?

I have heard you talking on TV and radio about not trusting the headline rate of interest from major lenders — could you explain why? I want to lock in a great rate for say five years is this possible as I know I won’t want to sell the property for at least five years. Can I get a five-year fixed rate and what do you think about that timeframe?

The headline rate is the rate of interest advertised on TV, on radio, on websites and in newspapers but there’s a more relevant one for your hip pocket and that is the comparison rate. What this tries to do is add in all of the fees and charges to tell you what is the real repayment slug will be to you. I found an advertised rate of 5.39% for a five year fixed rate but its comparison rate was actually 5.49%. I also found a 5.55% rate, which looks good, but once fees are thrown in, it goes to 6.08%! The best I found was UBank, which had a 5.16% rate for five years but its comparison rate was only 4.81%. Now it’s only with fixed rates that I have seen the comparison rate be lower than the advertised rate and the explanation I have received seemed convoluted, but the lesson remains — always ask for the comparison rate when you’re going for a new loan. I think the timeframe of five years is good because I think rates will remain low for a couple of years, but then will rise, and provided you know you won’t be selling within five years, then a fixed rate can be an excellent idea.

Published on: Friday, August 30, 2013

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