Comparison rate
A rate that bundles a loan's interest and standard fees into one figure so products can be compared fairly.
Lenders must publish a comparison rate alongside the advertised rate. It folds in most fees and charges to show the effective cost of the loan rather than the headline number.
It is calculated on a standardised example — commonly a $150,000 loan over 25 years — which rarely matches your actual loan. It is a comparison device, not a prediction of your cost.
The gap between advertised and comparison rate reveals how fee-heavy a product is. A small gap means few fees; a wide gap means the low headline rate is being subsidised by charges.
Reading the gap
A loan advertised at 5.89% with a comparison rate of 6.31% is carrying substantial fees. One at 6.05% comparing at 6.09% is cheaper in practice despite the higher headline.
The bit people get wrong
Comparison rates exclude many real costs — break fees, valuation charges, and lender's mortgage insurance among them. They also assume you keep the loan for the full standard term, which few people do.
Common questions
Should I choose the lowest comparison rate?
It is a better starting point than the advertised rate, but features such as offset, redraw and portability may matter more than a few basis points.
Why is the comparison rate on my loan different?
Because it is calculated on a standard example loan. A much larger loan spreads fixed fees over more borrowing, lowering their proportional effect.
Does it include LMI?
No. Lender's mortgage insurance is excluded, which is significant given it can add tens of thousands to the cost of a low-deposit loan.
Run your own numbers