What is a comparison rate, and why does it matter?
The comparison rate combines interest and most credit fees on a standard loan example. Use it to shortlist, then compare repayments and fees for your own amount and term.
An advertised home loan interest rate and its comparison rate answer different questions. The interest rate is used to calculate interest and scheduled repayments. The comparison rate combines interest and most credit fees on a standard loan example.
What is the comparison rate?
The commonly advertised home loan benchmark uses a $150,000 loan over 25 years. It lets you compare published figures on the same amount and term. It is not a quote for your actual balance, term or borrowing circumstances.
The National Consumer Credit Protection Regulations set out the benchmark, calculation and warning. The calculation includes ascertainable credit fees and excludes government charges. The warning identifies costs such as redraw or early-repayment fees, and savings such as fee waivers, as separate considerations.
Do not assume every discharge fee is excluded. Westpac's explanation includes discharge fees; check each lender's disclosure and the actual product fee schedule.
Why a lower interest rate does not settle the comparison
A loan with a lower advertised interest rate may carry different upfront or ongoing fees. Read the paired comparison rate and product conditions, then assess the features and costs you will actually use. A lower comparison rate is a lower benchmark figure, not proof that the product is cheaper for every borrower.
A fixed-dollar fee has a different relative impact on different loan balances. You cannot multiply the gap between the advertised interest rate and its statutory comparison rate by your own loan balance and call the result annual fees or savings. The benchmark uses a specific amount, term and cash-flow calculation.
Compare your own scenario
Use the comparison-rate guide for the benchmark's limitations. For scheduled payments, enter the actual interest rate into the repayment calculator, using the same loan amount and remaining term for each option. Assess annual fees and product conditions separately.
The refinance savings calculator models repayments and entered one-off costs; it excludes lender annual package fees. Include those fee differences separately before treating an estimated saving as a complete cost comparison.
MoneySmart recommends obtaining Key Facts Sheets for the amount you intend to borrow. Compare repayment assumptions, total payments and fees, and ask about insurance, offset or redraw conditions and possible early-repayment costs.