Comparison Rate
A rate that combines the advertised interest rate with most standard fees to give borrowers a clearer picture of the true cost of a loan.
In detail
Australian law requires lenders to display a comparison rate alongside any advertised home loan rate. The comparison rate is based on a standardised $150,000 loan over 25 years and includes the interest rate plus most upfront and ongoing fees. It does not include government charges, redraw fees, or early exit fees.
Because the calculation uses a fixed $150,000 loan, the comparison rate can understate the true cost of much larger loans where fixed fees are proportionally smaller. It also does not capture the value of features like offset accounts or redraw facilities that may justify a higher rate for some borrowers.
Why it matters for brokers
Clients often fixate on comparison rates when choosing a lender. Brokers add value by explaining when a lower comparison rate genuinely reflects a better deal and when features or policy outweigh a small rate difference.
Example in practice
A client is comparing two loans. Loan A has a 6.04 per cent rate and a 6.06 per cent comparison rate. Loan B has a 5.99 per cent rate and a 6.25 per cent comparison rate due to an ongoing $395 annual package fee. For a $600,000 loan, the broker calculates the true cost over five years and shows that Loan A is cheaper despite the higher headline rate.
Related terms
Fixed Rate Loan
A home loan where the interest rate is locked in for a set period, typically between one and five years.
Variable Rate Loan
A home loan where the interest rate moves up or down over time in response to market conditions and lender pricing decisions.
Offset Account
A transaction account linked to a home loan where the balance reduces the loan principal used to calculate daily interest.
Principal and Interest (P&I)
A loan repayment structure where each instalment reduces both the loan balance and the accrued interest.
Related guides
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