What is the meaning of comparison rate?

The term ‘interest rates’ has migrated from the financial sector to become part of the modern vernacular. After all, most of us are affected by interest rates one way or another.

But yet to make this migration is the term ‘comparison rate’. This is despite the two going hand in hand and comparison rates arguably being the more important of the two. 

Comparison rates are particularly essential when you’re shopping around for a home loan, so let’s explore what exactly is being compared.

What is a comparison rate? 

A comparison rate incorporates the interest rate of a home loan as well as certain fees and charges associated with it, expressed as a percentage.

Lenders are legally required to disclose a comparison rate alongside a home loan’s interest rate to reflect the truer cost of the loan. The aim of the comparison rate is to help borrowers more easily compare home loans offered by different lenders, taking into account their fees and charges.

Comparison rate background

The comparison rate, also known as the Average Annual Percentage Rate (AAPR), was mandated in Australia from 1 July 2003 under amendments to the Consumer Credit Code. This was done in a bid to force lenders to be more upfront about their fees and charges when advertising their home loan interest rates.

Essentially, some loans boasting low interest rates may not look as attractive when their comparison rates are declared. It also gives borrowers a standard for comparing home loans.

How useful are comparison rates?

Comparison rates are uniformly calculated on a theoretical loan amount of $150,000 with a loan term of 25 years.

And herein lies the biggest weakness of a comparison rate. As of April 2026, six Australian capital cities have median house prices of $1 million or more so it’s highly likely most borrowers will be looking at loans well over $150,000. 

It’s also common that borrowers will opt for a loan term longer than 25 years, with 30 years being the most popular while some lenders even offer loans up to 40 years.

So even if you encounter a competitive comparison rate, it may not give you the complete picture until you apply your own circumstances to any calculation. 

Interest rate vs comparison rate: what’s the difference?

Think of the interest rate as the small picture and the comparison rate as the big picture. The interest rate on a home loan, often referred to as the advertised or headline rate, is typically what the lender will advertise and what punters are most familiar with. It refers to the rate of interest you’ll be charged on the loan balance per year and affects how much your minimum monthly repayments will be. 

In contrast, the comparison rate represents the overall cost per year of the loan, including the interest rate and most of the fees and charges that will be incurred over the course of the loan. (More on this below.)

How do you calculate the comparison rate?

Comparison rates are calculated using a standard formula set out by the Uniform Consumer Credit Code (UCCC). The calculation itself is quite complex, so it’s probably best you use our home loan comparison rate calculator where you simply plug in all you information and it does the rest. 

Different loans: different calcs

It’s worth noting the values set out below are for home loan comparison rates. Car loan comparison rates are different and are usually based on a $30,000 loan amount over a five-year term, while personal loans are usually based on $10,000 over three years. 

Home loan comparison rates

The factors that go into the calculation for home loan comparison rates are: 

• Loan amount: As mentioned, this is a mandatory $150,000 amount. 

• Loan term: As above, the comparison rate sets the term at a mandatory 25 years. 

• Repayment frequency: This is typically monthly.

• Interest rate: This will come down to the product the lender is offering.

• Upfront fees: This includes establishment and/or application fees, and valuation fees.

• Ongoing fees: Monthly or annual account-keep or package fees.
• Exit/discharge fees: These are the fees applied when closing or refinancing the loan.
• Revert rate: This only applies if it’s a fixed-rate or intro-rate home loan. The default interest rate that the loan reverts to at the end of a fixed-rate or intro-rate term is also priced into the comparison rate. Given the default revert rates tend to be quite high, the comparison rates are often higher on fixed-rate loans than they are on variable-rate loans.

But in reality, home loan customers coming to the end of their fixed-rate term can often negotiate a better rate for their loan to revert to than their lender’s default revert rate.

See also: Why is the revert rate in a fixed-rate mortgage so important?

• Fees  

Some of these home loan fees may not apply based on the lender and product:

• Monthly account fee

• Annual fee

• Establishment fee

• Valuation fee

• Mortgage documentation fee

• Settlement fee

Australian Securities & Investments Commission

National Credit Code

What the regulator says

"The comparison rate regime aims to inform consumers of the true cost of credit that applies to a specific credit product and make it easier for consumers to compare the different credit products available on the market.

A comparison rate does not include all fees and charges. For example, the comparison rate does not include:

• government fees and charges
• charges that are only charged in certain circumstances (e.g. if you pay off the loan early).

The comparison rate only allows comparison based on cost, and will not include other factors that may make a loan more attractive, such as access to fee-free accounts or flexible repayment arrangements."

What doesn’t the comparison rate cover?

The comparison rate isn’t foolproof when it comes to comparing home loans – it has its pitfalls. There are some costs that aren’t included in the calculations, despite them likely affecting your mortgage costs. These include:

• Government stamp duty   

• Conveyancing fees 

• Fee waivers 

• Break costs and early termination fees

• Deferred establishment fees 

• Any optional costs such as early repayment and redraw fees

• Features like  offset accounts  or extra repayments 

Essentially, the comparison rate doesn’t include any add-on costs or those you may incur separately from the home loan, such as stamp duty. These costs are also worth factoring into your decision to purchase a home since they can end up being significant. 

Why is the comparison rate important?

The average Australian doesn’t have a great wealth of knowledge when it comes to banking or home loans. Most of us also don’t have the time to carefully peruse the terms and conditions of a loan product to be sure there are no sneaky fees hidden on page 36 of a home loan document, written in size 6 italic font. 

Comparison rates strive to give borrowers a full deck to play with when it comes to home loans, rather than a couple of jokers the lender may deal you.

The information that comparison rates can provide in simple terms is crucial, as even a marginal difference in the interest rate on your loan can cost tens of thousands of dollars over the long term. 

Comparison rate example

As you can see in the overly simplified table below, home loan A has a better interest rate than home loan B.

However, once the various fees and charges have been accounted for in the comparison rate, home loan B is a far cheaper product than home loan A. 

1. Savings.com.au’s two cents

Although we’ve championed the comparison rate as a home loan hero, there are many other things to consider when choosing which loan product is right for you. 

• Always consider the type of loan, such as whether it’s a fixed or variable rate or if it has an introductory rate

• Check what types of features it has, like offset accounts and split loan facilities

• Also check the conditions associated with it, such as whether there’s a cap on extra repayments

Where do you find the comparison rate?

It’s mandatory for lenders to also display the comparison rate when advertising their loan products. (This goes for personal loans and car loans as well.)

You’ll usually find the comparison rate right next to the headline rate, so for example “6.00% p.a. variable rate (6.50% p.a. comparison rate)”. 

All lenders must also provide a key facts sheet on the product they’re offering, which must specify the comparison rate, interest rate, and the total amount to be repaid over the life of the loan.

Case study 

Here’s a super simplified hypothetical situation to show you the application of comparison rates in real-world terms:

Cam Parison has found a well-priced apartment for sale at $600,000. He wants to buy it and has saved up $120,000 for a deposit and is looking to borrow $480,000 over 30 years. He’s found two products he likes from lenders ‘Connbank’ and ‘Not A Bank’.

However, the lenders are engaging in dodgy practices and not prominently displaying the relevant comparison rates, so Cam decides to calculate them himself. 

‘Connbank’ is offering a three-year fixed-rate mortgage. The fixed rate is 6.00% p.a. which switches to an ongoing variable rate of 6.50% p.a. at the end of the three-year fixed period. There is a $40 monthly fee, a $500 upfront fee, and $300 discharge fee.

Cam calculates that the comparison rate will be 6.55% p.a.

‘Not A Bank’ is offering a variable-rate mortgage with an interest rate of 6.25% p.a. The only fee is a $50 monthly fee. Cam calculates that the comparison rate will then be 6.42% p.a.

Borrowing from ‘Not A Bank’ over ‘Connbank’ would save Cam around $19,238 over the course of the loan. 

Finding a good home loan

As we've established, a good interest rate is not the whole story when it comes to choosing a competitive home loan, but it is a good place to start.

The table below features some of the lowest interest rates on the market. But be sure to check the comparison rate and the requisite fine print that can accompany some home loan products.

Loan purpose

Refinancing

Loan amount

Update resultsUpdate

Compare

Filters

Lender	Home Loan	Interest Rate	Comparison Rate*	Monthly Repayment	Repayment type	Rate Type	Offset	Redraw	Ongoing Fees	Upfront Fees	Max LVR	Lump Sum Repayment	Extra Repayments	Split Loan Option	Tags	Features	Link	Compare	Promoted Product	Disclosure
loans.com.au	loans.com.au Bare Home Loan (Basic OO P&I <90%)	5.94% p.a.	5.98% p.a.	$2,978	Principal & Interest	Variable			$0	$530	90%				Owner Occupier Variable Principal & Interest 10% Min Deposit Redraw Extra Repayments More details	Available for purchase or refinance, min 10% deposit needed to qualify. No application, ongoing monthly or annual fees. Dedicated loan specialist throughout the loan application.	Go to site	Compare	Promoted	Disclosure
Unloan	Unloan Variable Rate Home Loan LVR < 80%	5.89% p.a.	5.80% p.a.	$2,962	Principal & Interest	Variable			$0	$0	80%				Built and funded by CommBank Owner Occupier Variable Principal & Interest 20% Min Deposit Redraw Extra Repayments More details	No application or ongoing fees. Annual rate discount Unlimited redraws & additional repayments. LVR <80% A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.	Go to site	Compare	Promoted	Disclosure
Regional Australia Bank	Regional Australia Bank Home Loan Fixed (Owner Occupier, Principal and Interest, max lvr 60%) (3 years)	5.99% p.a.	5.95% p.a.	$2,995	Principal & Interest	Fixed			$0	$0	60%				Owner Occupier Fixed 3 Years Principal & Interest 40% Min Deposit Redraw Extra Repayments More details	Competitive rates to help you save A Dedicated Relationship Manager Certainty of repayments with a fixed rate term	Go to site	Compare	Promoted	Disclosure
Homestar	Homestar Star Nova LVR <70% (Owner Occupied, Principal and Interest)	5.93% p.a.	5.93% p.a.	$2,975	Principal & Interest	Variable			$0	$395	70%				Owner Occupier Variable Principal & Interest 30% Min Deposit Redraw More details		Go to site	Compare		Disclosure
Reduce Home Loans	Reduce Home Loans EconoME Home Loan (Owner Occupier, Principal & Interest, LVR 60%)	5.99% p.a.	6.01% p.a.	$2,995	Principal & Interest	Variable			$0	$150	60%				$3000 Cashback T&Cs apply Owner Occupier Variable Principal & Interest 40% Min Deposit Redraw Extra Repayments More details		Go to site	Compare		Disclosure

More home loans