What is a comparison rate?
A comparison rate rolls the interest rate together with most standard fees into a single percentage, so you can weigh two loans on a fairer footing than the headline rate alone. It is a useful tool, but only if you understand what it does and does not capture. This guide explains both.
Last updated July 2026Why the comparison rate exists
A low advertised rate can hide high fees, and a slightly higher rate with no fees can be the cheaper loan overall. To stop that confusion, Australian law requires lenders to show a comparison rate alongside the advertised rate in home loan advertising. It exists so borrowers can see closer to the true cost at a glance, rather than being drawn in by a headline number.
What the comparison rate includes
The comparison rate blends the interest rate with the fees and charges that come with the loan. It generally captures the ongoing costs of borrowing, while leaving out charges that cannot be known in advance.
| Usually included | Usually excluded |
|---|---|
| The interest rate | Government fees, such as stamp duty and title charges |
| Upfront and application fees | Fees that depend on an event, such as redraw or late payment fees |
| Ongoing account or service fees | Costs that cannot be determined at the outset |
| Settlement and valuation fees where known | Lenders mortgage insurance in the standard example |
How it is calculated
To make comparison rates comparable across lenders, they are worked out on a standard example rather than your actual loan. In Australia the long standing standard example for home loans is a loan of $150,000 over a 25 year term. Every lender applies its rate and fees to that same example, which is why you can line up two comparison rates fairly.
Because the standard example is $150,000 over 25 years, a comparison rate can look quite different from your own position if your loan is much larger or your term much longer. Fixed upfront fees, spread over a small example loan, weigh more heavily than they would on a large one.
Why your real rate can differ
- Loan size. The example is $150,000. On a typical Sydney loan several times that, flat fees have proportionally less impact than the comparison rate implies.
- Loan term. The example runs 25 years. A 30 year term spreads fees differently.
- Features you use. The comparison rate cannot price the value of an offset account, or the cost of a redraw fee you might trigger.
- Event based fees. Late payment or break costs are excluded because they depend on what you do.
How to use it well
- Start with the comparison rate, not the headline rate, to filter out loans that look cheap but carry heavy fees.
- Then look at the fees themselves, and estimate how they land on your actual loan size and term.
- Value the features you will really use, such as an offset, which no single rate can express.
- Check ongoing versus upfront fees, since a package fee changes the picture over the years you hold the loan.
Frequently asked questions
Is the comparison rate the rate I actually pay?
No. You pay the actual interest rate plus your real fees. The comparison rate is a standardised figure based on a $150,000, 25 year example, meant only for comparing loans on a level footing.
Why is the comparison rate higher than the advertised rate?
Because it adds in fees. If a loan has upfront or ongoing fees, its comparison rate sits above the headline rate. A comparison rate close to the advertised rate suggests a low fee loan.
Can a loan with a higher rate be cheaper overall?
Sometimes. A no fee loan at a slightly higher rate can beat a low rate loan loaded with fees, especially on smaller balances. The comparison rate is designed to reveal exactly this.
Keep reading
Apply this when you refinance your home loan or work through the step by step process, and define any term in the glossary.
Sources: Australian Securities and Investments Commission (ASIC) MoneySmart, guidance on interest rates and comparison rates; National Consumer Credit Protection Regulations (standard comparison rate example).
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Master Mortgage Broker Sydney is an independent education website. It is not a mortgage broker, does not arrange loans and does not provide financial or credit advice. Content here is general in nature and does not consider your personal objectives, situation or needs. Always confirm details with a licensed professional before acting.