The short answer
A comparison rate combines a loan’s interest rate with most of its standard fees and charges into one yearly percentage. Moneysmart describes it as a rate that helps you work out the true cost of a loan. For home loans it’s calculated on a standard example, a secured loan of $150,000 over 25 years, so it’s a useful guide but is unlikely to match your exact cost.
What a comparison rate includes
- The interest rate, including, for fixed and interest-only loans, the rate the loan reverts to when that period ends.
- Most standard fees and charges, such as establishment, ongoing or package fees.
What it may leave out
- Fees that depend on what happens later, such as break costs if you leave a fixed rate early.
- Government fees and some third-party costs.
- Fees for optional features you may or may not use.
The warning you’ll see
Advertised comparison rates come with a warning along these lines, as on our rate pages:
WARNING: These comparison rates are calculated on a secured loan of $150,000 over a term of 25 years. They are true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
Because fees are spread over that example loan, a fixed fee has a bigger effect on the comparison rate of a small loan than of a large one. If your loan is much larger than $150,000, the annual fee matters less than the comparison rate suggests, and more for a smaller loan.
Want the interest rate, comparison rate and fees side by side for your loan?
Book My Loan ReviewWhy the comparison rate can sit above or below the rate
- Higher: usually because of fees, such as an annual package fee.
- Higher on a fixed or interest-only loan: when the rate it reverts to afterwards is higher than the current rate.
- Lower on a fixed loan: when the revert rate is lower than the fixed rate.
How to use it when you compare
- Read the interest rate and the comparison rate together.
- Check the lender’s fee schedule, especially for fees the comparison rate may leave out.
- Think about your own loan size and how long you’re likely to keep the loan.
- Weigh features, such as an offset account or extra repayments, that the comparison rate doesn’t value.
- If you’re refinancing, add the cost of switching. Our refinance calculator shows how long it takes to recover it.
How a broker helps
We compare the interest rate, comparison rate, fees and features of loans across lenders on our panel for your loan amount and plans, and show you the numbers before you decide.
Mortgage broker at My Finance Consultants. Daniel compares home loan options from a panel of 40+ lenders for refinancers, investors and home buyers, by phone, evenings included. About Daniel
General information only. It doesn’t consider your objectives, financial situation or needs, and it isn’t tax, legal or financial product advice. Lending criteria, fees and charges apply.