What is Real Time Ratings™?

Real Time Ratings^TM is a world-first rating system that ranks home loans based on your individual mortgage requirements.

Unlike other home loan rating systems that grade their products once or twice a year, Real Time Ratings^TM results are calculated as you use the site, making them as up to date as possible.

Real Time Ratings^TM gives each home loan a score out of five stars, based on loan costs and flexibility. It also factors in your loan size, deposit amount and borrowing type so you don’t waste time looking at loans that aren’t applicable to you.

You shouldn’t need a business degree to navigate the home loan market. Real Time Ratings^TM does the work for you, so you have the most up-to-date assessment at your disposal.

How we calculate Real Time Ratings™

Real Time Ratings^TM analyses home loans from over 100 lenders to give each one a score out of five stars, based on how much the loan costs and how flexible it is.

The star ratings are rounded up to the nearest half, but when you hover your cursor over the stars, you’ll see the score is broken down into two categories: loan cost and flexibility.

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Loan cost

Loan cost is calculated by looking at the interest charges and fees that apply to your loan over the first five years of your loan. We chose this timeframe because the average home owner typically refinances within this time. We then divided this to provide an average monthly cost over the five years.

Importantly, by including the loan size in this methodology, the fees are proportionate to the loan amount, making it an accurate reflection of the costs you’ll encounter.

Flexibility score

We rank flexibility by assigning points to a range of loan features, such as offset accounts, redraw facilities and extra repayments.

The points reflect the relative importance of these features, based on consumer research, analysis of what lenders are offering, feedback with brokers and expert opinion.

For example, extra repayments were identified by our experts as one of the fundamental flexibility features – loans that don’t offer extra repayments will rarely get a score of 3 or more. Meanwhile, without a full offset account, it’s unlikely a loan will get a score of 4 or more. The highest scores between 4 and 5 are likely to be for loans that have all of these features and a range of others, such as unlimited extra repayments, but they may not necessarily have repayment holidays, because they’ve been identified by our panel of experts as features borrowers don’t value as highly.

Fixed loans will generally score lower than variable rate loans in flexibility because they often lack flexible features, such as the ability to make extra repayments.

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What makes Real Time Ratings™ unique?

We came up with Real Time Ratings™ because the home loan market has changed. Legacy ratings systems that are based on set loan amounts or calculated once every six or 12 months struggle to provide customers with an accurate assessment.

Loans are bigger

In the year 2000, the national average loan size was $140,000, according to the Australian Bureau of Statistics. In March 2018, it was over $388,000. But the reality is, many borrowers have loans much bigger than that, especially first home buyers in major capital cities.

What this means is the bigger your loan is, the less significant the fees become when assessing the overall cost of your loan.

EXAMPLE

Cindy is choosing between two loans: one with a 3.7% interest rate and a $400 annual fee vs one with no annual fee but a higher rate of 3.9%.

If the amount she is borrowing is $150K, she would be better off with the 3.9% loan.

If her loan was $800K, she would be better off with the 3.7% loan.

Borrowers switch or upgrade more often

While comparison rates look at the effective cost of a $150,000 loan kept for a full 25-years, the typical mortgage holder will take a 30-year loan and keep it for three to five years, according to industry experts and brokers. Real Time Ratings™ looks at the cost of a 30-year loan kept for five years to give a more representative view of a loan’s cost.

Deals are released more frequently

The combination of tightened lending criteria and a competitive lending environment also means lenders are constantly changing the offers they have in market. We’ve created a way to benchmark these new deals against the rest of the market within a few days of their launch.

Real Time Ratings™ Case Studies

The following hypothetical examples show how Real Time Ratings™ can help a variety of different borrowers find the right loan for them.

Olivia – the first home buyer

Olivia and her fiancé are planning to buy their first home. They’ve saved up $60,000 for a deposit, and Olivia’s parents are helping them out by matching this amount. However, even with a $120,000 deposit and a combined income of $160,000, when you consider the couple’s $6000 credit card and monthly expenses of $3500, their plan to borrow $610,000 to buy a house is likely to put a fair amount of pressure on their finances.

Olivia’s priority when visiting a comparison website is to find the most affordable home loans possible. After entering her details, she sorts the list of results from the lowest advertised interest rate to the highest, narrowing down her shortlist to only the cheapest options.

However, because lenders charge fees as well as interest on their home loans, these advertised interest rates alone don’t tell Olivia which home loans will be the most affordable overall. She could sort the loans by Comparison Rate, as this percentage combines each loan’s interest rate with its standard fees and charges. But while this is useful for making approximate comparisons between different loans, it doesn’t help Olivia to plan her budget or work out which loans she can realistically afford.

Using RateCity’s Real Time Ratings™, Olivia can view estimates of the actual cost of different home loans, measured in dollar values – exactly what she needs to prepare her household’s financial plan! Plus, the Flexibility Score shows which lenders offer features and benefits that add extra value to their home loans, which could influence her final decision.

Karl - the next home buyer

Karl is a self-employed dentist who’s currently paying off an $800,000 mortgage in $4000 monthly instalments. However, since Karl first bought his house, his family has grown (two kids!) and his circumstances have changed, so he’s started looking into selling his current place and upgrading to somewhere bigger.

Even with Karl’s annual income of $300,000, plus around $12,000 of additional annual income from shares and investments, his credit limit of $20,000 and monthly expenses of $10,000 mean that his budget will likely be stretched by the $1 million loan he’s planning for his large new house.

The simplest way for Karl to keep the ongoing costs down on his new loan would be to choose a lender with a low interest rate. Any fees charged by a lender are unlikely to make as much of an impact on Karl’s finances as interest charges on such a large amount of borrowed money. When Karl visits a comparison website, he sorts the list of recommended loans by advertised interest rate, so he can find the loans with the most affordable repayments.

Many of the low-interest loans on Karl’s shortlist are fairly simple and straightforward, and don’t offer a lot of extra features or benefits to borrowers. But because Karl is self-employed with a flexible income, he may find it useful for his home loan to have similarly flexible features, such as offset accounts to help further reduce interest charges, and redraw facilities so he can withdraw his extra repayments if required.

The Flexibility Score from RateCity’s Real Time Ratings™ lets Karl quickly work out which low-rate home loans also include features that will suit his financial situation. Plus, he can compare the estimated actual cost of different loans, rather than making a more general comparison using percentage rates.