It’s all part of Choice’s Better Banking campaign to promote competition among banks and give people better options for their banking needs. Which has pretty much been Mozo’s reason for being these last two years, so it’s great to find a soul mate.

The new mozo powered ‘Compare, Ditch and Switch’ service  enables Australians to objectively compare credit cards, home loans, savings products and transaction accounts from 89 banks, credit unions, building societies and non-bank lenders. Visitors to the site will also have access to our award-winning Health Check tool that instantly compares an existing home loan or credit card against the rest of the market.

“It’s exciting to combine Choice’s strong consumer voice with Mozo’s banking comparison engine and personalised comparison tools,” said Better Banking campaign director Richard Lloyd. “More mobile and discriminating bank customers help make a more competitive banking system for everyone.”

Visit the new Compare, Switch and Ditch site and let us know what you think via the feedback button.

So, what exactly is a capped home loan? Well the basic premise is this – for a fee, Bankwest are guaranteeing that the interest rate on your home loan will not go above a certain level (7.5%) until November 2011. Bankwest will first put you on a variable rate (currently at 5.4%) and if the rates go down you will pay less, but when they go up you’ll only pay up to the maximum rate. Bankwest is essentially selling ‘peace of mind’ given RBA increases are now a reality and the inevitable recovery of world economies after the global financial crisis.

It sounds like a no-brainer – competitive rate, a guarantee on rates for 3 years all for a nominal fee  - or so Bankwest would have you believe. What’s the catch you say? First off, you’re paying more than you would for a normal loan in fees. To get the cap, you have to fork out a fee (0.15% of the loan amount). If you’re borrowing $250,000 for example, this fee totals $375. Moreover, unlike any other variable rate loan by Bankwest, the exit fees for leaving is set at 1% of the loan outstanding at the time of exit – quite a sizeable amount if you’re only 2 years into paying off a loan of that size.

The real deal breaker in the whole equation however is the capped rate. Is it worth paying the extra fees to safeguard against interest rates going above 7.5%? Will rate rises go above and beyond the 2.1% needed to make the cap effective? Only time will tell, but it is a lot of interest rate rises in just 3 years. Moreover, if you are worried by rising interest rates perhaps you would derive more security in fixing all or part of your loan? Bankwest’s 3 year fixed rate is a good 40 basis points lower than the cap’s upper limit.

Despite the potential drawbacks, this home loan product could be heralded as the opening salvo of what is sure to be an intriguing period in the Australian home loan market as interest rates begin to rise. What will be interesting is to see how the market, particularly, the ‘Big Four Banks’, respond to Bankwest’s initiative. Watch this space, as there’s sure to be plenty more shots fired in the coming months.

Compare Home Loans with Mozo.com.au