A comparison rate is the advertised interest rate plus most of the loan's fees, expressed as a single annual percentage. Australian lenders must publish a comparison rate alongside any home loan rate they advertise. The intent is to give borrowers a single number that's harder to game than the headline rate alone.
How the comparison rate is calculated
The comparison rate uses a standardised formula set by ASIC:
- Loan amount: $150,000
- Loan term: 25 years
- Repayment frequency: monthly, principal and interest
It includes most fees:
- Application / establishment fee
- Monthly account service fees
- Annual package fees
- Settlement fees (in some cases)
And expresses the total cost as an annualised percentage. The published comparison rate on a home loan ad is what you'd actually pay if your loan exactly matched the standardised assumptions.
Why the comparison rate matters
Before comparison rates became mandatory, lenders could advertise a very low headline rate while charging high monthly fees that made the loan expensive in total. The comparison rate forces those fees into the rate, making honest cross-product comparison possible.
A loan with a 5.49% advertised rate and a 6.10% comparison rate has more fee burden than a 5.79% advertised rate with a 5.85% comparison rate, even though the second loan has a higher headline rate.
What the comparison rate does NOT include
- Government fees: stamp duty, mortgage registration, title transfer
- Lender's mortgage insurance (LMI)
- Valuation fees
- Redraw fees
- Early repayment fees
- Break costs on fixed-rate loans
- Discharge fees when you exit the loan
So two loans with identical comparison rates can have very different real costs. A fixed-rate loan with substantial break costs is a worse deal for someone planning to refinance in 2 years than the same comparison rate on a variable loan with no exit fees.
How to actually use the comparison rate
- Use it for first-pass shortlisting. A loan with a 0.4%+ gap between advertised and comparison rates has significant fees — worth investigating what those fees are and whether you'll trigger them.
- Adjust for your loan size. Comparison rates assume $150K, but a $700K loan dilutes fixed-dollar fees considerably. On a large loan, a higher comparison rate with lower headline rate often wins. On a small loan, the comparison rate is closer to the truth.
- Compare features alongside rate. A 0.05% higher comparison rate might be worth paying for a 100% offset, free redraw, split-loan capability, or unlimited extra repayments.
- Use a calculator for the real number. The Loan Comparison Calculator takes your actual loan amount, term, and rate to produce real-dollar comparisons across multiple loan options.
Common misuses
- Comparing loans across very different terms: a 25-year comparison rate isn't directly comparable to a 30-year. Comparison rates assume 25 years.
- Ignoring that you might refinance in 5 years: a 25-year amortised comparison rate is irrelevant if you'll move lenders well before then. Look at the rate, fees, and break costs over your actual likely time horizon.
- Treating it as your true cost: it's a comparison number, not a forecast. Your real cost depends on your loan size, term, behaviour, and which excluded fees you trigger.
For straight rate-and-fee modelling against your actual loan, use the Mortgage Repayment Calculator or the Loan Comparison Calculator.
Frequently asked questions
Why is the comparison rate higher than the advertised rate?
Because it includes most of the fees a lender charges on top of interest — application fee, monthly service fee, annual package fee — annualised over a 25-year loan on a $150,000 balance. The advertised rate is the interest charge only. The gap between the two tells you roughly how expensive the lender's fee structure is relative to its rate.
Is the comparison rate the actual cost of my loan?
No. The comparison rate is calculated on a standardised $150,000 loan over 25 years. Your actual loan is probably much larger and possibly over a different term. The comparison rate is useful for ranking loan products against each other, not for forecasting your dollar cost. For your actual cost, use the [Mortgage Repayment Calculator](/calculators/loan-repayment/) with the specific rate, fees, and term.
What does the comparison rate NOT include?
Government fees (stamp duty, mortgage registration), lender's mortgage insurance (LMI), redraw fees, valuation fees, early repayment fees, break costs on fixed loans, and discharge fees. So two loans with the same comparison rate can still have very different real costs depending on how often you trigger these excluded fees.
Why is a comparison rate required in Australia?
The National Consumer Credit Protection Act 2009 requires Australian lenders to display a comparison rate alongside any advertised home loan rate. The intent is consumer protection — preventing lenders from advertising a low headline rate with hidden fees that make the loan more expensive overall. ASIC defines the standardised calculation methodology.
How big a gap between advertised and comparison rate is concerning?
Under 0.1%: low fees. 0.1–0.3%: typical packaged loan with a modest annual fee. 0.3–0.6%: fee-heavy product worth investigating. Above 0.6%: substantial fees that may not be justified by the rate. The gap is most informative on small loans (where fixed-dollar fees hurt more) and least informative on large loans (where fixed fees are a smaller percentage).
Should I just pick the lowest comparison rate?
Not necessarily. The comparison rate optimises for cost on a standardised loan. Your loan probably isn't standard. A lender with a slightly higher comparison rate might be the right choice if they offer features you'll use (offset, redraw, split loans) that the cheaper lender doesn't, or if your loan amount is much larger than $150,000 (where percentage rates matter more than fixed fees). Compare on rate + features + service, not just comparison rate.
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Last updated: 16 May 2026