Also comparison rate is based on a loan of X size (says in the fine print - probably $250k). I have a $25,000 loan and the comparison rate for that loan specifically is way higher than the advertised rate as I pay $8 a month fees. Now lets not discuss break fees
I posted this a few months ago on a fixed rate thread about the comparison rate, still relevant here I think:
The comparison rate is supposed to give you an idea of the actual cost of the loan over a term (normally calculated at 25 years) as a percentage rate. So this would include all fees, ongoing and up front. Good in theory, but the reason it doesn't really help is the following:
1. An annual package fee would be included, but normally for investors with more than one loan, this package fee would be spread over all the loans, so the cost per loan is a lot less than allowed for here.
2. The average loan lasts 4 and a half years, before it is rewritten, refinanced, paid out etc. So what use is telling me the cost over 25 years?
3. But most importantly for a fixed rate loan, the comparison rate invariably reverts to the variable rate, because the loan is normally fixed for only 3 or 5 years, and then will be variable for the next 22 or 20 years. Which means on average the cost of the loan over 25 years is really close to the variable rate and never comes near the fixed rate. So for what we are trying to achieve in this thread, it is irrelevant, as we want to know what the actual rate is over a certain period of time, and we don't care what the loan costs for the 22 years after that...