Cost of loan the only true comparison

A few years ago I was developing software for mortgage brokers and I was trying to offer a better outcome than the mandatory comparison rate schedule because as discussed here it was simply confusing matters.  I developed an Actual Rate calculation that was pretty good but still didn’t handle fixed rates or split loans at all well.

It then came to me that the best way to compare two home loans was to say – OK if I refinance in 3,5 or say 7 years – tell me how much in simple dollar terms will one loan cost as compared to another taking all fees and charges into account.  It’s so simple why doesn’t everyone use it … and the answer is that is quite a complex bit of mathematics.  But it was worth the effort and now for a simple example – we figure out your loan requirements and the which products are suited to your needs then compare:

Cost of Loan Comparison

The following table shows the calculated cost of your loan if you were to refinance it or discharge the loan with a lump sum payment at a given time. The cost includes all known establishment and exit fees net of lender rebates and fee waivers – it is not possible to calculate early pay out fees on fixed rate loans. Minimum Loan and Max LVR is stated only where the lender’s discount is based on these.

The calculation period is based on paying out the loan after 60 months on a loan amount of $432,842 based on a full loan term of 30 years.Ongoing rates are not guaranteed after any initial period.

Lender
Product
Description
Min
Loan
Max
LVR
Initial
Rate
Initial
Months
Ongoing
Rate
Actual
Cost
Adelaide
SmartFix Fixed 3 Years
$10,000
95%
5.99%
36
6.11%
$127449
Adelaide
SmartFit Variable
$10,000
95%
6.21%
0
6.21%
$131222
AMP
Essential Home Loan
$40,000
90%
5.90%
0
5.90%
$124121
AMP
Basic Fixed 3 Year
$100,000
90%
5.99%
36
6.07%
$126986
ANZ
Breakfree
$250,000
80%
6.10%
0
6.10%
$130006
ANZ
Fixed 3 Year Breakfree
$100,000
80%
6.33%
36
6.10%
$133080
Heritage
Discounted Variable
$150,000
95%
5.79%
0
5.79%
$121894
Heritage
Fixed – 3 Year
$20,000
95%
5.85%
36
6.13%
$125819
meBank
Members Package Fixed 3 years
$50,000
5.74%
36
6.08%
$124808
meBank
Members Package Variable
$50,000
6.08%
6.08%
$129352