【Home Loans: You Cannot Compare Based on Online Interest Rates】Your Applicable Interest Rate Is Determined After Screening

When looking for a home loan, the first thing many people check is the interest rate posted on a bank’s website.

“Variable interest rate 0.85% per annum”
“Click here for the best preferential interest rate”

You might be tempted to line up these numbers and choose the bank with the lowest one.
However, the interest rate displayed online is not necessarily the one that will be applied to you.

Home loan interest rates are determined by subtraction

Applicable interest rates, such as variable rates, are generally determined by the following mechanism.

Base interest rate (over-the-counter rate) – Interest rate reduction margin = Applicable interest rate

For example, if the base interest rate is 3.0% per annum and the reduction margin is 2.0% per annum, the applicable interest rate is 1.0% per annum.

What is important here is not just the low interest rate on the website, but
how much of a reduction margin will be applied to you as well.

The same bank does not always mean the same interest rate

Depending on the financial institution and the product, the interest rate reduction or markup margin is determined based on the application details and screening results.

In the screening process, generally,

• annual income, employer, and years of service

• employment status

• status of other borrowings

• loan amount and repayment period

• collateral valuation of the property

• ratio of self-funding

• group credit life insurance plan

and other multiple conditions are checked.

Which items are emphasized and to what extent varies depending on the financial institution and product.

For example,
whether you are a civil servant or self-employed even with the same annual income,
or whether you work for a large company or a small-to-medium enterprise even in the same occupation,

such points may also be taken into consideration.

Therefore, even if you use the same bank’s product, the interest rate is not necessarily the same if the applicant or borrowing conditions differ.

The “best preferential interest rate” is not a rate available to everyone.

The lowest interest rate posted online is an easy-to-understand figure for conveying the appeal of a product.

However, in many cases, it is the interest rate applied only when certain conditions are met.

In terms of property advertisements when looking for a home, it might be close to the “listed price” of a room with good conditions.

It serves as a reference for an entry point, but you cannot judge based on that number alone that:

“This bank is the cheapest”
“I can also borrow at this interest rate”

You cannot make such a judgment.

Some financial institutions clearly state on their product pages that a certain interest rate may be added to the displayed rate depending on the screening results.

The interest rate only becomes your own figure after you submit an application for screening.

What you should really compare is not the advertised interest rate on the internet.

It is the conditions presented to you after applying for screening at multiple financial institutions.

However, there is a caveat here as well.

Depending on the financial institution, the applicable interest rate may not be finalized at the pre-screening stage, and the interest rate or the reduction margin may be indicated only after the formal screening is completed.

In other words, the timing and method for checking this also differ from bank to bank.

It is not just the interest rate that you should compare.

Once you receive an actual offer, compare at least the following conditions side-by-side.

• Applicable interest rate

• Interest rate reduction margin

• Administrative fees and guarantee fees

• Group Credit Life Insurance coverage and interest rate surcharges

• Fees for early repayment or interest rate changes

• Support available after borrowing

Even if the advertised interest rate is low, the burden may be greater when including fees and Group Credit Life Insurance surcharges.

Conversely, even if a bank does not have the lowest interest rate, it may be the right fit for you when considering coverage and post-borrowing support.

Online figures are just the starting point for comparison

A home loan is not a product to be chosen based solely on the figures posted on a website.

Online interest rates are reference information for finding candidates.
Only after applying for screening and comparing the actual interest rates, costs, coverage, and post-borrowing conditions presented to you can you perform a true comparison for yourself.

What you should compare are not the interest rates banks advertise, but the conditions offered to you.

Rather than searching for the best preferential interest rate, confirm which conditions apply to you.
That is the first step toward correctly comparing home loans.