What Is the Difference Between Rate and Comparison Rate?

A lender’s current and potential clients may not understand the difference between a mortgage’s interest rate and comparison rate. It is essential for a lender to have a clear understanding of this topic so they are able to explain and educate their clients on the proper information. 

A mortgage’s interest rate is the determining factor of how much a client will be required to pay in order to successfully become approved for a home loan with a mortgage broker. Interest rates are expressed as percentages that widely vary between individual clients and their financial status, credit score, income, and risk status as potential borrowers. 

Short-term home loans with a lower interest rate will generally result in a borrower paying a higher amount of monthly mortgage repayments, while a long-term loan with a higher interest rate can indicate the opposite. 

A comparison rate is a calculation of a home loan’s interest rates, fees, and charges that are calculated as a percentage and used to determine the total cost of a home loan. Comparison rate calculations allow a potential borrower or existing client to review and compare a home loan to various other loan options being offered by a large majority of lenders and brokers. A comparison rate can allow a client to better understand the cost of a home loan when compared to its interest rate. 

It is widely recommended for potential borrowers to compare their home loan and mortgage broker options to verify they will apply for a mortgage with rates and terms that best match their financial requirements.