What is a home loan comparison rate?

A comparison rate represents the true cost of a loan and aims to show that as a simple-to-understand number in the form of a comparable interest rate.
Ava Crawford
Written by
Ava Crawford
Imogen Baxter
Reviewed by
Imogen Baxter
Last updated
May 17, 2024
0 minute read
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Australian couple looking at loan options considering comparison rates

Are you a first-home buyer? If you’re looking to purchase a home and are new to the world of mortgages, understanding interest rates can be confusing. Variable interest rates, fixed rates and comparison rates - what does it all mean? Well, you've come to the right place.

A comparison rate represents the true cost of a loan and aims to show that as a simple-to-understand number in the form of a comparable interest rate. All lenders must show a comparison rate alongside their advertised interest rate by law.

Home loan interest rates and fees vary, so it’s important to understand the true cost of your loan and know how much your monthly repayments will be.

This article will explain more about the comparison rate, how it is calculated, what things are and aren’t covered, and why it matters when choosing your next home loan.

What is a home loan comparison rate?

A comparison rate looks at the overall try cost of your home loan. Unlike a standard variable rate home loan or fixed rate that is often spoken about, the comparison rate uses a formula to account for interest payments based on the advertised rate but also includes different fees and charges that you may come across in your loan term.

A comparison rate is an interest rate, typically expressed as a percentage rate. It also includes any other fees on the loan, like monthly account-keeping fees. The rate will usually be higher than the standard or fixed rate because it considers the hidden costs that you may overlook when speaking to a lender or mortgage broker. Your lender may also have a repayment calculator online that can help you understand your principal & interest repayments and your current borrowing power.

This can be a more holistic and accurate way of working out how much you will repay your financial institution in the long run.

What does the comparison rate include?

The comparison rate is calculated using a formula that looks at the interest rate and other fees and charges. Due to this, the comparison rate typically will be higher than the advertised headline rate because it considers the additional costs.

When a comparison rate is the same as the advertised interest rate, that means that the loan has no associated fees. That said, you should always check the conditions of your specific loan.

The comparison rate is calculated using the interest rate and other charges. Considerations include:

  • the amount of the loan
  • fees and charges
  • loan term (typically 25-30 years)
  • mortgage repayment frequency and type (principal and interest or interest only repayments)
  • interest rate (variable rate or fixed rate home loan)

Three categories are generally considered when calculating the comparison rate. This can differ between different lenders, so some fees may not apply:

Any upfront fees (valuation fees, application fees, legal costs)

  • Application fee
  • Preapproval fee
  • Valuation fee
  • Documentation preparation charges
  • Legal fee
  • Settlement charges

Ongoing fees (monthly costs or package costs)

  • Monthly account-keeping fee
  • Annual fees for the loan or package
  • Periodical admin fee

Discharge fees upon loan completion

  • Discharge fee
  • Documentation preparation charges
  • Settlement charges

Comparison rates are all calculated off a uniform loan amount of $150,000 and a loan term of 25 years, which might not be 100% accurate since most mortgages are larger than this, and loans can go for 30 years +.

The general need for the comparison rate is to ensure that deceptively low rates aren’t being offset with giant fees and negatively impacting you in the long run.

What does the comparison rate not include?

The comparison rate doesn’t include all fees and charges that you will encounter in the home-buying process. Things not included are:

  • Any optional items included in or added onto the loan. Some loan options that are not included are early repayment fees or redraw fees, a redraw facility, and offset accounts.
  • Any lenders mortgage insurance (LMI) charges.
  • Any government charges, including mortgage fees, stamp duty or land title costs.
  • Any fees and charges that aren’t available at the time when the comparison rate is calculated and provided.
  • Any cost-saving waivers or offsets that can influence the cost of a loan. Including cashback offers.
  • Any extras the lenders may add, like fee-free credit cards, transaction accounts or discounts on personal loans.

Why pay attention to comparison rates?

The comparison rate can show the real cost of a home loan. This can be useful, as often, the loan with the lowest interest rate may not actually be the most affordable option.

Looking at the interest rate alone, you may not be privy to additional fees associated with the product. So, considering the comparison rate helps you understand the true cost of the loan and decide what is best for your budget and long-term financial future.

Lenders and loan providers usually offer various different home loan types with a range of interest rates. All rate types, variable rates and fixed rates, are advertised with accompanying different comparison rates.  

Which home loan products you qualify for depends on if you’re an owner-occupier or investor, as well as your property type, property value and financial situation - such as credit score and deposit amount saved. For example, low-interest rate loans often require a low loan-to-value ratio (LVR). If your LVR exceeds 80%, meaning you have a deposit of less than 20% of your home’s value, you will likely face a higher interest rate.

Target market determinations

Note: If you want to know if a home loan product best suits you, request the target market determinations (TMD). This is a document required by ASIC that provides information on the following:

  • Who is the target market for the financial product, including their ability to afford the product and take a financial hit 

  • How and when the product will be available

  • How and when the target market determination will be available to customers


So, when you go to enquire about your home loan options, checking the comparison rate is a critical step, especially if you’re not in a strong financial position and the interest rate seems too good to be true. It’s also critical to remember that variable interest rates shift with the cash rate, so a comparison rate cannot predict where your interest rate will be in the future. Even with a fixed-rate loan, once the fixed term (or fixed rate period) is finished, it will revert to the current variable rate or your lender’s basic home loan - which the comparison rate also does not account for.

Comparison rates are not only important when you’re looking for a new home. Refinancing is another great time to monitor a loan’s comparison rate. When you refinance, you’re often looking for a better interest rate based on the increased equity you have accumulated since the beginning of your existing home loan. You can look at the new loan’s comparison rate to ensure you save money on your home loan repayments.


How much are interest rates in Australia?

Home loan repayments in Australia vary largely based on the property value, the details of the home loan (like the interest rate and loan term), and the size of the home loan deposit.

Before you commit to a home loan, it’s important to assess your financial situation to make sure the repayments are in your price range. This is especially important as interest rates can fluctuate and you’ll need to be able to make your repayments even if they increase.

Depending on the home loan term, whether you make additional repayments, if you refinance at any point, you’ll be able to plug your mortgage into a repayments calculator to work out what your individual home loan repayments will be.

If you are on a fixed rate home loan, your interest rate will be set for a pre-determined time (usually between one and five years). On a variable rate home loan, the interest rate on your home loan will follow reserve bank movements.

Like with many loans, often introductory offers do apply. Make sure to check the comparison rate for a realistic look at the interest rate you’ll be paying on your home loan.

Does my deposit impact my home loan interest rate?

The amount of deposit you pay can have an impact on your interest rate (though other factors also impact this as well)!

If you pay a small deposit, a home loan lender may view your loan as higher risk. It can come with higher interest rates. This comes hand in hand with higher repayments.

Conversely, a larger deposit may reward you with lower interest rates. This can mean your loan attracts less interest, provided it is paid off in the same (or shorter) loan term.

Do interest rate rises affect my ability to refinance?

Interest rate rises don't directly affect one's eligibility to refinance. 

What lenders look for when approving refinancing applications are things like the value of the property, your current financial position, and your credit score.  

If the value of the property has decreased or if you've got a low credit score, it might be more difficult for you to get approval. 

They'll also want to see that you've got a steady income and a history of making timely payments. 

This article is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation, or needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS), or other offer documents before making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).
Prepared by OwnHome Services Pty Ltd ACN 664 492 059. This information does not take your personal objectives, circumstances or needs into account. Always read the disclosure documents for products and services before deciding on a product or service, and consider seeking independent legal, financial, taxation or other advice for your unique circumstances.

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