What does a home loan comparison rate tell you?
A home loan comparison rate combines the interest rate with most fees into one annual percentage for a stated example. It helps you notice costs beyond the headline rate, but your balance, term and product use can differ from that example. Read the assumptions beside the rate, then calculate the dollar costs for your own loan. Use the contract interest rate when estimating repayments, with fees entered separately.
By Ratey · General information for Australian borrowers.
Example: the same fee has a different weight
Consider a hypothetical $300 annual fee. It is 0.20% of a $150,000 balance and 0.05% of a $600,000 balance. Those simple ratios show why loan size matters, but they are not official comparison-rate calculations: they hold the balance constant and ignore repayment timing.
For a real decision, compare both loans using your balance and term, their contract rates and their actual fee schedules. If the larger loan is repaid quickly or you switch again soon, the relative effect of upfront and annual fees changes further. The advertised example cannot express every one of those paths.
Read the small example beside the big number
The loan amount and term used for the advertised calculation matter. Westpac’s published comparison-rate warning, for example, uses $150,000 over 25 years and explains that different amounts, terms or fees can change the result. Check the warning on each offer instead of assuming every figure describes your mortgage.
A comparison rate is especially useful as a prompt: if it is noticeably above the headline rate, investigate the fee schedule and the product assumptions. Do not subtract the two percentages and treat the difference as a fee invoice. The calculation combines a schedule of charges and interest into a single rate.
Keep three different numbers separate
Your contract interest rate is used to calculate loan interest. The comparison rate is a summary built from stated assumptions. Your total dollar cost depends on the balance path, actual fees, features and time you hold the loan.
Moneysmart describes a personalised comparison rate and total repayment amount among the information in a loan’s Key Fact Sheet. Ask what assumptions sit behind any personalised figure and which costs remain outside it. A quote using your amount and term is more relevant than a generic example, but still needs to match your intended behaviour.
| Number | Use |
|---|---|
| Interest rate | Calculate interest under the contract |
| Comparison rate | Notice the combined effect of included interest and fees |
| Dollar cost over your horizon | Compare your actual balance, term and expected use |
Translate fees into your own situation
A fixed annual fee is a larger share of a small loan than a large loan. This means the fee effect in an advertised example may not reflect the relative importance of that fee for your balance. You cannot reliably fix this by dividing the comparison-rate gap by your loan-size multiple; repayment timing and other assumptions still matter.
Instead, collect each interest rate and fee, use the same opening balance and remaining term, and compare the resulting interest and fee totals. If you are refinancing, include the costs of leaving the old loan as well. Keep those switching costs visible even when they are not part of the new lender’s advertised figure.
Add the features you will use
A standard example does not know your average offset balance, withdrawal habits or planned extra repayments. If you expect an offset to change the result, compare its rate and fee cost with the interest benefit under your own balance assumption. Access conditions can matter as much as the calculated saving.
For a fixed or introductory offer, ask what interest-rate assumptions apply after the initial period. A future variable rate is uncertain. Record that uncertainty and test an alternative scenario instead of treating a long-term comparison figure as a forecast.
Once you understand the numbers, use the broader comparison guide to match loan purpose, repayment type, features and eligibility across your shortlist. This page explains the rate label; the next step is a comparison between offers you could actually use.
Your next-step checklist
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Common questions
Should I enter the comparison rate in a repayment calculator?
Use the contract interest rate and enter fees separately where supported. Entering a comparison rate and also adding fees can count some costs twice.
Is the lowest comparison rate always the cheapest for me?
No. Your balance, term, holding period and use of features can change the dollar comparison. Check the assumptions before relying on the ranking.
Why are the interest rate and comparison rate sometimes close?
Included fees may have a small effect under that example. It does not establish that every possible charge is included or that the product suits your circumstances.
Sources and assumptions
These primary sources support the explanations above. Examples use invented figures to show the calculation or decision; they are not available loan offers. Check your lender’s terms for your circumstances.
Calculations are estimates and do not establish borrowing eligibility. Read the calculation methodology.
Compare the amounts you would actually pay
Use the quoted interest rates and fees with your balance, remaining term and expected holding period.