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Background
Putting aside the flexibility of each loan for a moment, if you are like most people, you would expect a mortgage with a comparison rate of 8.63% to not just be cheaper, but substantially cheaper than the home loan with a CCR of 8.94%.
The home loans in this case study are the MyRate Advantage Home Loan (CCR 8.63%) and the BankWest Rate Tracker (CCR 8.94%). Although the lenders are quite different, the actual home loans are substantially the same. The loans have been chosen on the basis of reasonable market acceptance and both are equally flexible basic variable loans. The loan amount used in the case study is $300,000 as this is a loan amount used in Compulsory Comparison Rate Schedules for both products (Click here to download).
Apple to apple repayments and fees.
The repayments are calculated monthly on the basis of a 30 year term. In line with best practice, the higher minimum repayment amount of the two loans has been used for both loans. For example, if Loan A has a minimum monthly repayment of $500 and Loan B of $400, then both Loan A and Loan B are compared using repayments of $500. This means that you are spending the same amount of money on repayments, regardless of the interest rate of the loan.
Any fees associated with the set up of each loan have been added to the original loan amount to assigned a time value to this money. The BankWest Rate Tracker has a higher set up cost, which results in a higher initial loan amount.
Average life of loan
Two Life of Loan periods were used. These were based on the shortest average life (20 months) and the longest average life (7 years) according to Infochoice (click here to download).
Difference between lenders
Although both the MyRate and BankWest loan are very similar, as lenders, they are quite different. BankWest is a bank. If you need to make changes or follow up on your loan, then you can contact BankWest directly. Of course, you also always have the support of Mates Rates if you are struggling to resolve any issues.
MyRate, on the other hand, is a mortgage originator. Once your loan settles, it is passed off to a mortgage manager (currently Loan Service Australia) who then manage your loan on behalf of MyRate and the wholesale funder, ING. Although funding is provided by ING, you are not an ING customer and cannot contact them directly to resolve concerns or problems with your loan. On the surface this type of multi layer relationship may seem unimportant, however this has caused borrowers very real problems in the past. The Consumer Action Law Centre (Melbourne) made submissions to the Productivity Commission raising concerns over this exact problem, where they stated:
"... often we are not talking about one intermediary standing between the seller and the consumer - we may be talking about two or three or even more - and this can create a number of difficulties for the consumer in the event that things go wrong during the transaction. It can make it more difficult to enforce rights, because the ultimate lender, the person to whom a consumer owes a debt... may rightly claim a lack of knowledge of particular circumstances that may render a contract, or the circumstances into which it was entered, unjust."
Further savings not factored in
The mortgage rebate available from Mates Rates for the BankWest Rate Tracker is higher than calculated in the example. It is likely to reduce the cost of this loan further. The lower rebate of 0.25% is the average mortgage rebate available on all products and all lenders through Mates Rates Mortgages.
The results also assume you will bear the cost of the Deferred Establshment Fee, however if Mates Rates arranges the your BankWest Rate Tracker home loan, you will be covered by our Satisfaction Guarantee, which reduces the cost of refinancing further.
Some reality checks
Different loan amounts, different repayment rates and a number of other factors will affect the results reflected here. You should also make sure you get the right home loan structure before you compare the cost - even if you still want to use a comparison rate to choose your loan.
Mates Rates Mortgages will not broker MyRate loans. MyRate and BankWest are trademarks of the respective organisations.
published 03-06-2008
