THE BAREFOOT BROKER with Jason Khoury
Comparison Rates were rolled out by ASIC with good intentions but have turned out to be quite useless, so I’ll continue to lobby for their removal on the basis they’re just not real.
A Comparison Rate (CR) is a made-up, notional & unrealistic ‘rate’ which tries to include ongoing fees into the actual interest rate, in a rudimentary effort to estimate the true cost of a loan.
It’s like a car salesman giving you a price on a car that wraps up their estimate of fuel and repairs in the next few years.
If you have a mortgage you probably pay an annual ‘Package Fee’ of around $395 per annum, which means you pay no other ongoing fees.
For an $800,000 mortgage, a $395 annual fee is the equivalent of only 0.05% on top of the rate.
So why the big difference between the actual & Comparison rates? It’s because the advertised comparison rates must be calculated on the assumption of a $150,000 loan.
On a small loan like that the annual fee represents a whopping 0.26% – so a packaged is usually not recommend on such a small amount and you don’t need to be a rocket scientist to see this is deceptive.
The annual Package Fee also includes the annual fee waiver for a Platinum credit card – which might normally be $179. Is this factored into the CR? No.
Many of my clients get the benefits of running dual offset accounts. These are free too. Are these savings included in the CR? No.
For clarity, the true costs of a loan depend on three things you need to ask your broker:
- SET UP COSTS: “what is the total cost, to the cent, to set up this loan/refinance? Is there a rebate?”
ONGOING FEES: “What are the ongoing annual (or monthly) fees?”
RATE: “Including any lifetime discount, what is the actual rate?”
Ask your broker for a 10-year Cost Comparison Projection taking the three things above into account.
Ten years will iron out any initial rebate, discounted first year rate and all that nonsense.
Here is an example relating to Dr Elle from Woolwich where I am refinancing her investment loan from CBA to another bank where I’ve negotiated a variable rate of 3.59%, which saves Elle over $8,000 per year.
And here is the comparison I provided her, which is much more meaningful than a Comparison Rate.
I want to make something really clear – iChoice sounds like a franchise, but it isn’t. It’s a family business and there are no banks who own it with me.
The fact that iChoice is the only non-franchise brokerage to be ranked by in the MPA Top 10 brokerages in Australia and number one in NSW, warms my heart.
It’s happened very quickly. I was a sole trader 3 years ago and have since employed 4 staff and have a second office.
How did I do it? The trick is to be able to clearly explain things to people without all the jargon and sales-talk we all get sick of. I keep it real, unlike the banks, that ramble on about features.
I concentrate on the benefits that these features provide, taking into account the client’s unique situation and measure success by the number of people I’ve helped, not by volumes and certainly not by income.
I’m honest with a genuine passion to help others get safely ahead and I find it hard to distinguish between friends and clients, because I treat everybody in my life the same.
My team – Victoria, Alexia and Maroun – have driven our growth, using the same principles I’ve outlined and are capable and compassionate people I’m proud to have among my dearest friends.
Get in touch with me – Jason – on 9743 0000 or 0400 900 300.
On a totally unrelated subject, I took the kids for lunch on the weekend at the café in Ryde Park. It’s just so beautiful there. Maybe I should host a sausage sizzle for all TWT readers one day – stay tuned for more on that.