Ziggy Rate
The Ziggy Rate is a mathematical calculation that works out the REAL cost of a home based on each borrowers individual circumstances, by allowing a borrower to choose a comparison period.
The Ziggy Rate takes into account all costs associated with a home loan including set up fees, ongoing fees, exit fees and interest rates.
It also takes into account the timing of the home loan costs and discounts costs that happen in the future, to provide a more accurate interest rate comparison method.
As an example lets consider two home loans:
Loan A
$100,000 home loan where the total cost over 4 years is $35,000 made up of an application fee of $3,000 plus an interest rate of 8% ($100,000 x 8% x 4 years = $32,000) and
Loan B
$100,000 home loan where the total cost over 4 years is $35,000 but made up of an interest rate of 8% ($100,000 x 8% x 4 years = $32,000 ) plus an early repayment fee of $3,000.
When comparing the two loans the total costs are identical over 4 years but the timing of the fee is different in each case , with one lender charging an up front fee, while the other is charging it at the end.
Unless we adjust the costs for timing, the two loans would be ranked equally, but they are not. The REAL value of the exit fee of $3,000 is only $2,180, because it is delayed for 4 years, meaning a saving of 8% over 4 years. To calculate this precisley we need to use a process called net present valuing which works out what a payment made in the future is worth in todays dollars.
The Ziggy Rate calculates all of these variables for you, so you won't need to work it out yourself, all you need to do is identify what period of time you would like all Ziggy Rates compared over.
The comparison period is important because it only takes account of costs (interest and fees) that are scheduled to be incurred during this period.
Example: If a lender charges an early repayment fee for only the first 3 years and you chosse a 4 year comparison period it will ignore the early repayment fee because it would have lapsed at the end of the 4th year.