Interest.co.nz launches new home loan comparison calculator allowing you to compare the impact on the rate you are offered of costs you be will liable for, and the benefits of any cashbacks, across multiple offers

We're launching a new calculator, the home loan comparison calculator.

Almost all mortgage calculators will tell you how much you need to repay, or how much you can borrow, or how long it will take to pay off your loan. And we have these types of calculators too.

There are many variations, but they essentially hang on the basic maths you can use to build a spreadsheet for loan repayments.

But in fact, the loan decision these days involves a mix of the rate and term factors, and these other factors can really screw the scrum.

Sometimes there are extra costs, like account fees, even break fees if you are contemplating a switch from one bank to another.

But more importantly there are incentives dangled to encourage you to switch. These are usually cash incentives, or legal fee subsidies and the like. Often they're bundled into one omnibus offer.

And of course, there are interest rate discounts from the bank rate cards.

The basic bargain is a balance between the interest rate level, some costs (if any), and the level of the incentives.

So the question quickly becomes challenging - what is the best deal? It isn't just a matter of comparing the interest rates offered.

And you really should get multiple offers. In its personal banking market study, the Commerce Commission strongly recommended getting at least three alternatives.

Of course, some mortgage brokers may tell you they "know the market" and their recommendation should suffice. Even if you do get more than one suggestion from them, how do you compare? It isn't easy unless you have the motivation, patience and skill to do the maths. A good mortgage broker can help with that too.

That is what our new home loan comparison calculator is designed to do; compare three alternatives taking into account all the added costs, and the incentives offered.

You can find it here, which you can bookmark. It is also at the bottom of this article.

To use it you will need to know a few things, most of them obvious but not all. For example, you'll need to know the bank's policy on clawing back cash incentives. Currently, most banks require you to stay with them for three years if you take a cash incentive. While that may seem understandable, if you make a deal to fix your interest rate with them for a shorter period, and at that future rollover time you wish to shift banks "for a better deal", you will be in a situation where you will have to pay back some of the original cash incentive. This becomes a cost at that next rollover decision, but an avoidable one if you don't shift.

Because it's broadening the factors involved in a mortgage decision, the new calculator makes some core assumptions. And be aware, they may or may not apply to you.

Mortgage decisions are personal and the right decision isn't necessarily only related to the maths. For example, the calculator assumes the cashback incentive is amortised over the term of the claw-back restraint period. But if you used these funds to help build an extra room or some other property enhancement, you could possibly think of this in a different way. 

In the end this is just a simple tool to help you think about what you have been offered and make a comparison based on an estimated effective interest rate after taking into account the main variables.

The core comparison is the calculated "effective interest rate". Use this rate for comparison only. (It isn't the rate that will be on the mortgage contract; that will still be the offered rate.)

We hope the calculator's useful.

We welcome feedback, which you can either post in the comments section below, or you can send us via the contact us links at the bottom of the page. We'd love to hear from you.

(Please also note that any use of this tool is completely anonymous and we have no way to identify any user. And we are not harvesting the data entered for any research purposes.)