Beware of loans with comparison rates fattened by fees that will make your borrowing more expensive.

For example, Citigroup is telling property borrowers casual income used to calculate capacity to service a loan is being discounted by half, Job Keeper payments cannot be used in servicing and applications reliant on foreign income are unacceptable.
For those with secure employment, there are lots of great deals. Major lenders are willing to sharpen their pencils and compete head-on with competitors. This can mean discounts off standard variable rates of 200 basis points, says Chris Foster-Ramsay, principal of Foster Ramsay Finance.
We are in a very competitive market driven by large numbers of borrowers who are refinancing.
Chris Foster-Ramsay, principal of Foster Ramsay Finance
Lenders’ first offer will not be their best, or last, offer, Foster-Ramsay says. We are in a very competitive market driven by large numbers of borrowers who are refinancing. Lenders have to be ultra-competitive to get the business.”
Since February the number of variable rates below 3 per cent has quadrupled to more than 30 per cent, says Canstar, which monitors fees and rates.
Two interest rate cuts in March and the Reserve Bank of Australia bond-buying programme have held funding costs for lenders at all-time lows, adds Steve Mickenbecker, Canstars group executive.
Freedom Lend is offering 2.39 per cent with an equivalent comparison rate for a $1 million principal and interest variable loan to a borrower with 20 per cent deposit. Tic:Toc Home Loans is offering the same headline rate with a comparison rate of 2.40 per cent.
Buyers attracted by cheap advertised rates, both for fixed and variable loans, need to check on the small print comparison rates to make sure they are not paying thousands of dollars a year extra in upfront and annual fees.
Some of the “headline” rates being offered to borrowers are more than 170 basis points lower than the comparison rate, which includes all the additional fees and charges for setting up and administering the loan, says Canstar.
Thats before the addition of government fees and, in some cases, the cost of loan options such as early repayment or redraw fees.
Those with fixed rates also need to budget in a reversion to the higher variable rate at the end of the term, which could create funding issues for borrowers on tight budgets. Those who try to exit the fixed rate early will be charged high discharge fees.
Gerard Brody, chief executive of the Consumer Law Action Group, says a comparison rate includes the interest rate and some fees and charges relating to the loan.
But it is opaque, says Brody. Different terms, fees or other loan amounts might result in a different comparison rate.
Some lenders offer a low headline rate but have higher fees and charges reflected in the comparison rate. Others advertise low costs with a slightly higher comparison rate.
Tasmania-based Bank of us has cut rates below the 2 per cent benchmark and is offering a headline rate of 1.99 per cent for a $1 million one- and two-year fixed rate. The comparison rates are 2.78 and 2.71 per cent respectively. The rate is only available in Tasmania but other lenders are likely to follow the lead with sub-2 per cent offers.
Comparison rates are usually higher for fixed rates, typically about 1 per cent above the headline rate, because at the end of the fixed rate-term the loan reverts to a higher variable rate, according to Canstar analysis.
For variable rates, the gap is typically about 14 basis points. It increases for lenders that package other products, such as insurance, with the loan.
Comparison rates are regulated by the National Credit Code and are used by all financial institutions and mortgage providers.
Comparison rates for variable interest-only loans are based on a five-year term. Fixed or interest-only loans are based on an initial interest-only period equal to the fixed period.