Why Is Comparison Rate Lower than Interest Rate?

As an expert mortgage broker it is essential to have an adequate understanding of comparison and interest rate specifics. A client may contact you for assistance in determining why a home loan comparison rate is lower than its interest rate. 

A home loan with a comparison rate calculation that proves to be lower than the interest rate may be due to the loan being equipped with decreased amounts of fees and charges. A home loan with a comparison rate that is higher than the interest rate may be due to the loan having increased amounts of fees and charges. 

A comparison rate is presented as a percentage that allows a client or potential borrower to determine the total cost of a home loan. Comparison rates are calculated by combining the home loan terms, rates, and fees and exist to allow clients the opportunity to compare a specific home loan option to various other loan options that are currently available, and better understand the cost of a home loan when compared to its interest rate. 

An interest rate is also presented as a percentage and is considered to be the determining factor of how much money a client will have to pay in order to successfully become approved for a home loan. 

It is important to keep in mind that various home loan options will have differing comparison and interest rates than others. Interest rates can also vary depending on the individual borrower’s financial status, history, and credit score.