Every home loan advertisement in Australia must display two numbers: the interest rate and the comparison rate. Most people focus on the first and ignore the second. Here's why the comparison rate is actually more useful — and why even it has limits.
Always
Must be displayed by law
$150K
25yr basis for calculation
+fees
Includes most standard fees
±0.5%
Typical gap above interest rate
What Is a Comparison Rate?
A comparison rate is a single percentage figure that combines a home loan's interest rate with most of its standard fees and charges into one number. The idea is to give borrowers a more accurate picture of the true cost of a loan than the headline interest rate alone.
Australian law requires all lenders to display a comparison rate alongside their advertised interest rate. The comparison rate is always calculated on a standard basis: a $150,000 loan over 25 years. This standardised basis makes comparison between different lenders' products possible.
What's Included in the Comparison Rate?
The comparison rate includes:
- The interest rate itself
- Application / establishment fees (charged when you first take out the loan)
- Ongoing monthly fees
- Annual fees
- Any mandatory settlement fees charged by the lender
What the comparison rate does not include:
- Government charges (stamp duty, title registration)
- Lender's Mortgage Insurance (LMI)
- Offset account fees
- Redraw fees
- Early exit or break costs (for fixed loans)
- Optional feature fees
- Discharge fees
A Practical Example
Imagine two lenders offer 6.00% p.a. on a home loan:
| Lender | Interest Rate | Annual Fee | Comparison Rate |
|---|---|---|---|
| Lender A | 6.00% | $0 | 6.05% |
| Lender B | 6.00% | $395/yr | 6.42% |
Both advertise 6.00% — but Lender B's annual fee adds 0.37% to the true cost over a 25-year loan of $150,000. On a real $700,000 loan, this gap is much larger in dollar terms.
Why the comparison rate is calculated on $150,000 — and why this matters
The $150,000 / 25-year standard is a legal requirement — but it means the comparison rate can be misleading for large loans. A $300 annual fee has a bigger impact on a $150,000 loan than a $700,000 loan. On a larger loan, the fee is a smaller percentage of the total, so the comparison rate overstates the fee impact. Always look at the actual fee amounts, not just the comparison rate percentage.
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Comparison Rate vs Interest Rate: Which Should You Focus On?
The answer depends on your situation:
- If you plan to hold the loan long-term (5+ years): Focus on the comparison rate — ongoing fees compound over time and the comparison rate captures them
- If you plan to refinance within 2–3 years: The interest rate matters more than the comparison rate — because you won't accumulate many years of fees. In this case, the lowest interest rate wins even if the comparison rate is slightly higher.
- For fixed-rate loans: Be especially careful — break costs aren't in the comparison rate and can be enormous
The Loyalty Tax Hidden in Comparison Rates
Here's a frustrating truth: lenders often offer lower comparison rates to new customers than to existing ones. A borrower who took out their loan 3–4 years ago may be paying a comparison rate 0.5–1.0% higher than what the same lender now offers to new customers — for the identical loan product.
This is called the "loyalty tax" — and it's one of the main reasons refinancing can be so valuable. The gap between your current rate and the best available rate in the market today can represent tens of thousands of dollars over the life of the loan. Our dedicated article: What Is the Loyalty Tax and How Much Is It Costing You?
How to Use the Comparison Rate Properly When Comparing Lenders
- Compare comparison rates across lenders with similar loan features (e.g., don't compare an offset-account loan to a basic loan — they're different products)
- Scale the fees to your actual loan size — a broker can do this for you
- Check what's NOT in the comparison rate (offset fees, redraw fees, discharge fees)
- Don't let a slightly lower comparison rate override dramatically different product features
- Ask your broker to show you total-cost-of-loan comparisons over your expected holding period — this is more useful than comparison rates alone
At Mortgagefy, when we compare loans we show you the full picture — interest rate, comparison rate, actual fees, and estimated total cost over your holding period. We compare across 30+ lenders and find the genuinely best option for your profile. Free rate comparison: call 0432 634 648 or use the chat below.
See also: Should You Refinance in 2026? | The Loyalty Tax Guide | How Much Can You Save Refinancing?
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