What Is a Comparison Rate and Why It Actually Matters

Every home loan advertisement in Australia must legally include a "comparison rate" alongside the interest rate. The comparison rate is supposed to make it easier to compare loans on a like-for-like basis — but most borrowers don't know how to read it.

What the Comparison Rate Includes

The comparison rate combines:

• The interest rate
• Most fees and charges associated with the loan
• An assumption about a standard loan size and term (typically $150,000 over 25 years)

The result is a single percentage figure that gives a more honest picture of the true cost than the interest rate alone.

Example

Loan B looks cheaper based on interest rate, but Loan A is actually cheaper overall once fees are factored in.

Why Comparison Rates Aren't Perfect

The comparison rate has limitations:

• Standardised loan size — Calculated on $150,000. Your $700,000 loan has different fee proportions.
• Doesn't include all fees — Government charges, valuation fees, and some early repayment costs aren't included.
• Doesn't reflect features — An offset account or redraw may save you more than a slightly lower comparison rate.
• Less useful for fixed loans — Comparison rates assume the rate stays the same, which doesn't reflect what happens after a fixed period expires.

What to Compare Instead

For an accurate comparison of home loan costs, look at:

• Interest rate
• Annual package fee
• Application/establishment fee
• Whether it has offset / redraw / split capability
• Discharge fee if you leave
• Reverting rate after fixed period

How to Calculate Your Own Comparison

For your specific loan amount and goals, calculate the total cost over a realistic period:

1. Loan size × interest rate × loan term
2. Plus: all upfront and ongoing fees over that period
3. Minus: any cashback offers or rebates

This gives a real-dollar number you can compare across lenders.

The Cashback Trap

Some loans advertise cashbacks of $2,000–$4,000 to attract borrowers. These can be genuine value — but only if the loan is competitive on rate. A loan with a $3,000 cashback but a rate 0.3% above the market will cost you far more than $3,000 over the life of the loan.

Why Brokers Help With This

A broker can model the actual cost across multiple lenders for your specific loan size, structure, and goals — far more accurately than reading advertised comparison rates. They factor in fees, features, and discounts that aren't reflected in headline numbers.

Bottom Line

The comparison rate is a useful starting point — better than just looking at the interest rate. But for a real comparison of what a loan will cost you, you need to model the actual numbers for your specific situation.