Key takeaways
- A comparison rate rolls the interest rate together with most loan fees into a single percentage, so you can see the true cost of borrowing.
- It is worked out on a standard $150,000 loan over 25 years, which is why your real figure can differ from the advertised one.
- A low advertised rate with high application and annual fees can carry a higher comparison rate than a slightly dearer loan with no fees.
- It does not include government charges, break costs or optional product fees, so it is a guide, not the whole story.
When you are shopping for a home loan, the headline interest rate is the bit everyone notices. The comparison rate is the bit that actually tells you what you will pay. Andy has been broking in Western Australia since 2000, and one of the first things he does with clients is line up the comparison rates, because a sharp advertised rate can hide a loan that costs more once the fees are added in.
What a Comparison Rate Actually Is
A comparison rate combines the interest rate with the standard fees on a loan, then expresses the lot as one percentage. Lenders in Australia are required to publish it next to the advertised rate so borrowers can compare loans on a like-for-like basis. Think of it like the price per litre on a supermarket shelf, it lets you compare two products that are packaged differently.
How It Is Calculated
The comparison rate is built from the interest rate plus application fees, ongoing fees and annual charges. To keep it consistent across lenders, it assumes a set loan: $150,000 over 25 years. Your loan is probably bigger and your term different, so treat the published figure as a fair comparison tool rather than your exact cost.
What It Leaves Out
A comparison rate does not include government charges, break costs on fixed loans, or optional fees like the cost of an offset package you may not use. Those still matter, they just are not in the number.
Why a Low Rate Can Still Cost More
This is where people get caught. A loan advertised at a very low rate can carry a high comparison rate if it has a big upfront fee and an annual package fee. Here is a simple illustration:
| Loan | Advertised rate | Fees | Comparison rate |
|---|---|---|---|
| Loan A | 5.89% | High annual + setup fees | 6.35% |
| Loan B | 6.04% | No ongoing fees | 6.10% |
On the billboard, Loan A wins. Once the fees are in, Loan B is cheaper. Figures here are for illustration only, but the pattern is real and it is exactly the kind of thing worth a second set of eyes.
How Andy Uses It for You
Andy queries more than 30 lenders, so he is not stuck selling one product. He looks at the comparison rate alongside the features you will actually use, your offset, your redraw, your plans for the next few years, and explains the trade-offs in plain English before you sign. If a cheap-looking loan has a sting in the fees, he will tell you. Once you understand comparison rates, it is worth reading up on how an offset account compares to a redraw facility and the real costs of refinancing.
The Next Step
If you are weighing up two loans and the numbers are not telling a clear story, send them to Andy. He will walk you through what each one really costs over the life of the loan. Have a look at the home loans page, then get in touch for a straight answer.
Comparison Rate Questions
Is the comparison rate the rate I will actually pay?
No. It is calculated on a standard $150,000 loan over 25 years so different lenders can be compared fairly. Your real cost depends on your loan size, term and the features you use.
Why is a loan with a low rate showing a high comparison rate?
Usually because of upfront and ongoing fees. A big application fee or annual package fee lifts the comparison rate even when the advertised rate looks sharp.
Does the comparison rate include stamp duty or break costs?
No. Government charges, break costs on fixed loans and optional product fees sit outside the comparison rate. Andy can map those out for your situation.
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