What is a Comparison Rate?
A comparison rate is a tool designed to help borrowers understand the true cost of a home loan by combining the advertised interest rate with most of the mandatory fees and charges into a single percentage figure
Key Points:
- Purpose: It allows borrowers to compare different loan products more accurately, beyond just the headline interest rate.
- Legal Requirement: Lenders must display the comparison rate alongside the advertised interest rate under the National Credit Code
- Calculation Basis: It’s calculated using a standard example—a loan of $150,000 over 25 years with principal and interest repayments
What’s Included:
- Interest rate (including any revert rates, such as fixed rates reverting to a variable rate, or intro/honeymoon rates reverts to a higher variable rate)
- Upfront fees (e.g. application, valuation, establishment)
- Ongoing fees (e.g. monthly or annual account-keeping fees)
What’s Not Included:
- Government charges (e.g. stamp duty)
- Lender’s Mortgage Insurance (LMI)
- Optional features (e.g. offset accounts, redraw facilities)
- Conditional discounts or fee waivers
Why It Matters:
- A loan with a low interest rate but high fees may have a much higher comparison rate, revealing its true cost.
- If the comparison rate is close to the interest rate, the loan likely has minimal fees.
- It’s a guide, not a guarantee—actual costs may vary depending on your loan amount, term, and features
Would you like help comparing specific loan products or calculating a tailored comparison rate for your scenario? Get in touch with one of our experienced mortgage brokers.
