What is a comparison rate, and why does it matter?

The comparison rate is the legally-required 'true cost' rate that includes most fees. Here's why a 5.24% loan can actually cost more than a 5.39% loan.

If you've ever looked at a home loan rate table, you'll have seen two numbers next to each product: the advertised interest rate and a "comparison rate" usually a few basis points higher. The comparison rate is what ASIC requires lenders to disclose under the National Credit Code, and it exists to make different loan products genuinely comparable.

This is one of the most useful regulatory disclosures in Australian consumer finance — and one of the most misunderstood.

What is the comparison rate?

The comparison rate is a calculated rate that includes most of the fees and charges associated with the loan, expressed as a single annual rate. It's calculated on a standardised loan of $150,000 over 25 years, on a secured basis. The standardisation matters — it's what lets you compare two products on the same footing.

The fees included are: establishment/application fees, ongoing monthly/annual fees, valuation fees, settlement fees, and legal fees. The fees NOT included are: stamp duty, government charges, redraw fees, exit fees (if any), and break costs on fixed loans.

Why a 5.24% loan can cost more than a 5.39% loan

Two real-world examples from products in our [live index](/home-loans/cheapest):

- **Lender A**: 5.24% advertised rate, $395 annual fee, $250 application fee → comparison rate around 5.32% - **Lender B**: 5.39% advertised rate, $0 annual fee, $0 application fee → comparison rate 5.39%

Over a 25-year loan term on the standardised $150k, Lender A's apparently-cheaper rate produces total interest plus fees of roughly the same as Lender B's higher headline rate. On a larger loan ($600k+), the comparison-rate gap narrows even further because the fixed fees become a smaller percentage of the total cost.

This is why we sort our default rate table by **comparison rate**, not advertised rate. It's the closer-to-honest number.

How big a deal is it?

For most loans the gap between advertised and comparison rate is small — 5-15 basis points. But for some products (especially professional packages with high annual fees, or loans with offset accounts that have monthly fees), the gap can be 30-50 basis points. That's $1,800-$3,000 a year on a $600k loan.

The gap also matters more for smaller loan amounts. A $300k loan amplifies the impact of the fixed fees because they're a larger percentage of the loan. If you're borrowing under $400k, pay close attention to the comparison rate.

What you should do now

When you're comparing products, start with the comparison rate, not the advertised rate. Then look at what's actually in the package — for some borrowers an offset account is worth the annual fee, for others it isn't. The math depends on how much you'll keep in the offset.

Our [refinance savings calculator](/calculators/refinance-savings) uses the interest rate (not the comparison rate) for repayment math, but you should always check the comparison rate when shortlisting products. A broker can also walk you through the fee structure of any specific product.