What a comparison rate tells you, and what it doesn't

Every advertised home loan rate in Australia comes with a second figure, the comparison rate. It's there to stop a low headline rate hiding a pile of fees.

What it is

A comparison rate rolls the interest rate and most of the loan's standard fees and charges into a single percentage, so loans can be compared on something closer to their true cost. In most advertising for home and personal loans, it has to appear alongside the advertised rate.

The standard example

Fees matter more on a small loan than a large one, so comparison rates are worked out on a standard example. For home loans and other loans secured by property, that's $150,000 over 25 years. For unsecured personal loans and car loans, it's typically $30,000 over five years. That's why every comparison rate carries a warning: it's true only for the example given and may not include all fees and charges.

What it includes

• The interest rate, including any discounted introductory rate and the rate it reverts to
• Upfront fees, such as application or establishment fees
• Ongoing fees, such as monthly service fees or annual package fees

What it leaves out

• Government fees and charges, such as stamp duty and registration fees
• Fees that depend on what happens later, such as break costs on a fixed rate or late payment fees
• Lenders mortgage insurance
• The value of features like an offset account, which can save far more than a small difference in rate

Why your own number can differ

Borrow $600,000 instead of $150,000 and the same fees are spread over a much larger balance, so they add less to the effective rate. On a large loan, a product with a higher comparison rate can still be cheaper for you. On a small one, fees bite harder than the headline rate suggests.

How we use it

Our home loan calculator shows a comparison rate alongside the indicative rate, worked out on the standard example. When we compare options for you, we cost them on your actual loan amount and term, including the fees the comparison rate leaves out. Open the calculator.

General information only. This article does not take into account your objectives, financial situation or needs, and it is not personal financial, legal or taxation advice. Lending criteria, fees and conditions apply, and all applications are subject to lender assessment and approval.