Key Takeaway

The comparison rate is a mandatory Australian figure that shows the true annual cost of a home loan by combining the advertised interest rate with most standard fees and charges over a 25-year loan term. Unlike the headline rate, which only reflects interest, the comparison rate lets you see the total cost of borrowing and compare products on equal footing. Always check both figures, but remember the comparison rate assumes you borrow the full A$150,000 example amount for the full term, so your actual cost may differ based on your loan size, repayment behaviour, and fee structure.

What Is the Comparison Rate?

The comparison rate is a single percentage figure that Australian lenders must display alongside the advertised interest rate in home loan advertising, as required under the National Consumer Credit Protection Act. According to ASIC MoneySmart, it represents the true cost of a loan by rolling together the interest rate and most upfront and ongoing fees into one annualised percentage (MoneySmart, 2024).

The comparison rate is calculated on a standard A$150,000 loan over 25 years with principal-and-interest repayments. This standardised scenario means you can line up products from different lenders and see which one costs more in total, not just which one advertises the lowest rate.

Why the Headline Rate Misleads

Lenders advertise the interest rate because it looks attractive, but the interest rate alone does not capture the full expense. Two loans with identical advertised rates can cost vastly different amounts once you add application fees, annual account-keeping fees, valuation fees, settlement fees, and ongoing service charges. A loan with a 5.50 per cent interest rate and A$1,000 in upfront and annual fees may end up more expensive than a loan at 5.60 per cent with no ongoing fees.

The comparison rate corrects this distortion. By folding fees into the percentage, it shows which product is genuinely cheaper over the life of the loan. As foundational finance texts such as Principles of Finance explain, the effective cost of borrowing includes both the nominal interest rate and the transaction costs associated with obtaining credit.

What the Comparison Rate Includes (and Does Not)

The comparison rate includes most standard fees: application fees, monthly or annual account-keeping fees, and loan-establishment charges. It does not include government charges such as stamp duty, optional features such as offset account fees (unless the offset is a mandatory part of the product), break costs for fixed-rate loans, or redraw fees. It also does not account for the impact of extra repayments, offset balances, or switching lenders before the 25-year term ends.

Because the calculation assumes a A$150,000 loan, the comparison rate can be misleading if you are borrowing a much larger or smaller amount. Upfront fees have a bigger proportional impact on a A$200,000 loan than on a A$600,000 loan, so a product with a high comparison rate on the A$150,000 example may actually be competitive for a larger borrower. Always ask the lender to calculate the comparison rate for your actual loan amount and term.

Read also: Home Loans and Interest Rates in Australia in 2026

Rates shown are as of October 2026 and change frequently. Verify current advertised rates and comparison rates with a licensed lender or mortgage broker before deciding.

How to Use the Comparison Rate When Comparing Loans

Start by checking that the comparison rate is lower than or close to the advertised rate. A large gap (for example, an advertised rate of 5.30 per cent and a comparison rate of 5.75 per cent) signals high fees. A small gap or identical figures suggest the product has minimal ongoing charges.

Next, compare the comparison rates across lenders for the same loan type (variable or fixed, principal-and-interest or interest-only). The loan with the lowest comparison rate will generally cost you less over the standard term, assuming you do not make extra repayments or pay off the loan early.

Finally, look beyond the number. If you plan to use an offset account, pay off the loan in under 10 years, or refinance within a few years, the standard comparison rate may not reflect your real cost. Ask the lender or broker to model your specific scenario, including the features you will actually use and the likely loan term.

Next Steps

When you compare home loans, always view the comparison rate alongside the advertised interest rate. Check the loan’s product disclosure statement to see exactly which fees are included and which are optional. If the comparison rate is based on the standard A$150,000 example and your loan amount is significantly different, request a recalculated figure for your borrowing amount and intended term. For personalised advice on which product fits your circumstances, financial goals, and repayment capacity, consult a licensed mortgage broker or lender. Additional guidance is available from ASIC MoneySmart at moneysmart.gov.au/home-loans.

General Advice Warning

This article provides general information only and does not consider your personal objectives, financial situation, or needs. Home loan suitability, interest rates, comparison rates, fees, eligibility, and loan terms vary by lender, product, loan amount, deposit size, and your individual circumstances. State-based charges such as stamp duty differ by jurisdiction. Rates change frequently and the figures shown are current as of October 2026. Before acting on this information, confirm current rates, fees, and terms with a licensed lender or mortgage broker, review the relevant product disclosure statement, and consider obtaining personal financial advice from a licensed professional to ensure the product is appropriate for your situation. This is not personalised financial, lending, or legal advice.