Heritage Bank has warned brokers and borrowers to dig deeper to find the right loan, as comparison rates could be “misleading”.
The bank’s head of intermediaries, David Ure, said there is a danger that people may use comparison rates to oversimplify their choice on the interest rate rather than taking into account other features of the loan.
Mr Ure said comparison rates are based on a snapshot of a particular set of circumstances, which is great if those terms fit exactly with what people want their loan to be.
“The reality is that a different set of circumstances might produce a very different result,” he said.
“A loan of a different amount, over a different time frame, and rapid in weekly instalments would not produce the same percentage rate.”
Mr Ure said comparison rates do not take into account that people who take out a fixed-rate loan may re-fix at the end of their term or switch to a different type of variable loan product.
“At some institutions, people will be able to re-fix and switch without cost or payout their loan with no penalty,” he said.
“At other lenders, they will incur a fee.”
Mr Ure said comparison rates are a useful guide, but brokers need to sit down with borrowers and do their homework based on their own individual circumstances.