Comparison Rate Explained
What the comparison rate includes, why it's calculated on $150,000, and when it misleads.
What is a comparison rate?
A comparison rate is a single percentage that combines a home loan's interest rate with most of its fees and charges. Australian lenders are legally required to display it alongside their advertised rate under the National Consumer Credit Protection Act.
The idea is to make it easier to compare the true cost of different loans — a loan with a low headline rate but high fees may actually cost more than one with a slightly higher rate and no fees.
Example: fees driving the gap
- Loan A: 6.00% p.a. interest rate, $395/year annual fee → comparison rate ~6.38% p.a.
- Loan B: 6.10% p.a. interest rate, $0 fees → comparison rate 6.10% p.a.
Loan A's headline rate looks better, but Loan B actually costs less once the annual fee is factored in — which the comparison rate reveals.
What does the comparison rate include?
| Included | Not included |
|---|---|
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The $150,000 / 25-year problem
By law, every comparison rate in Australia is calculated on a $150,000 loan over 25 years. This was a reasonable representative loan when the regulation was drafted — it's not representative of most Australian mortgages today, where the median loan is closer to $600,000.
This matters because fixed fees (like a $395/year annual fee) have a much bigger proportional impact on a $150,000 loan than on a $600,000 loan. On a $150,000 loan, $395/year adds roughly 0.26% p.a. to the effective rate. On a $600,000 loan, the same fee adds only about 0.07% p.a.
Practical implication
If you're borrowing $600,000, the comparison rate overstates the cost impact of annual fees by roughly 4x. On large loans, the headline interest rate is a better guide to actual cost than the comparison rate. On small loans close to $150,000, the comparison rate is more accurate.
When the comparison rate is lower than the interest rate
This is rare but does happen. The clearest current example is Unloan, which has a headline rate of 5.69% p.a. but a comparison rate of 5.60% p.a. — lower, not higher.
The reason: Unloan offers a loyalty discount of 0.01% p.a. for each year you hold the loan, up to 0.30% p.a. The comparison rate calculation projects this discount forward over 25 years, which pulls the effective rate below the starting rate.
How to use the comparison rate
The comparison rate is best used as a first filter — to eliminate products with excessive fees that a low headline rate is obscuring. A large gap between headline and comparison rate (more than 0.20%) is a signal to investigate what fees are involved.
Beyond filtering, don't over-rely on it. Two caveats matter most:
- On large loans, the gap is overstated — the headline rate matters more
- The comparison rate ignores offset account value — a slightly higher comparison rate on a loan with free offset may be the better deal for borrowers with significant savings
Comparison rates in our current listings
| Lender | Interest rate | Comparison rate | Gap |
|---|---|---|---|
| Pacific Mortgage Group | 5.59% p.a. | 5.59% p.a. | 0.00% — no fees |
| Unloan | 5.69% p.a. | 5.60% p.a. | −0.09% — loyalty discount |
| Up Home | 5.70% p.a. | 5.70% p.a. | 0.00% — no fees |
| Macquarie Basic | 5.84% p.a. | 5.86% p.a. | +0.02% |
| Reduce Home Loans | 5.94% p.a. | 6.00% p.a. | +0.06% |
| HSBC | 5.99% p.a. | 6.00% p.a. | +0.01% |
| CommBank (Wealth Pkg) | 6.34% p.a. | 6.72% p.a. | +0.38% — $395/yr fee |
FAQs
What is a comparison rate on a home loan?
A comparison rate combines a home loan's interest rate with most of the fees and charges into a single percentage figure, so you can more easily compare the true cost of different loans. In Australia, lenders are legally required to display a comparison rate alongside their advertised rate under the National Consumer Credit Protection Act.
Why is the comparison rate higher than the interest rate?
The comparison rate is usually higher because it includes ongoing fees (monthly or annual fees) and upfront fees spread over the loan term. The more fees a loan has, the bigger the gap between the headline rate and the comparison rate. A loan with a 6.00% interest rate and a $395 annual fee might have a comparison rate of 6.38% p.a.
Can the comparison rate be lower than the interest rate?
Yes, in rare cases. Unloan's comparison rate (5.60% p.a.) is lower than its headline rate (5.69% p.a.) because of its loyalty discount — 0.01% p.a. per year up to 0.30% p.a. The comparison rate calculation projects this discount forward over 25 years, pulling the effective rate below the starting rate.
What are the limitations of the comparison rate?
The comparison rate is calculated on a $150,000 loan over 25 years by law — a figure that doesn't reflect most Australian mortgages today. On a larger loan (e.g., $600,000), fixed fees have less impact proportionally, so the comparison rate overstates the cost. It also excludes some fees (like redraw fees and early repayment fees on fixed loans) and doesn't account for offset account benefits.
Should I choose the loan with the lowest comparison rate?
The comparison rate is a useful filter, but not the only factor. A loan with a slightly higher comparison rate might include an offset account that saves you far more than the fee differential. On large loans, the gap between headline and comparison rate shrinks, so the headline rate matters more. Use the comparison rate to eliminate fee-heavy products, then compare features for the shortlist.
Related
- Offset account explained — why offset value isn't captured in the comparison rate
- LVR explained — how your deposit size affects your rate tier
- Fixed vs variable rate — which is right for you
- Best Home Loans 2026 — top picks ranked by use case
- Compare all home loan rates
Comparison rates shown are based on $150,000 over 25 years as required by law. This page is for general information only. Confirm rates and fees with each lender before applying.