Apply NowWhat Is a Comparison Rate and Why Does It Matter?
James Fairbanks
Founder & Managing Director
4 min readWhen comparing home loans, you'll see two rates displayed side by side: the advertised interest rate and the comparison rate. Most borrowers focus on the advertised rate — the lower number — but the comparison rate tells a much more complete story.
What does the comparison rate include?
The comparison rate is calculated by combining the interest rate with most of the fees and charges associated with the loan, expressed as a single annual percentage. By law, lenders must display the comparison rate for all advertised loans. It includes: the interest rate, upfront fees (application, valuation), ongoing fees (annual account fees, monthly charges), and loan establishment costs.
Example:
A "2-year fixed at 5.49%" with a $395/year fee and a $600 application fee might have a comparison rate of 6.21%. The advertised rate looks great — but the comparison rate reveals the true cost.
What comparison rates DON'T include
- Discharge fees (charged when you pay out the loan)
- Redraw fees (some lenders charge per redraw)
- Break fees on fixed rate loans
- Offset account fees
- Government charges (stamp duty, mortgage registration)
How to use comparison rates effectively
The comparison rate is most useful when comparing similar loans — same loan type, same term, same borrowing amount. It's less useful for comparing very different products (e.g. a basic variable vs a full-featured package loan). Your broker will present a true cost comparison that accounts for ALL fees specific to your situation.
Fairbanks Tip
The comparison rate is calculated on a $150,000 loan over 25 years by law — which doesn't reflect most modern borrowers' situations. For a $600,000 loan, the impact of fees changes significantly. Ask your broker for a cash flow comparison specific to your loan size.
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