What is a comparison rate on a home loan?
Understand what a comparison rate is, how it works, and why it’s key when comparing home loans.
A comparison rate is a single percentage figure that combines a home loan’s interest rate with most of its fees and charges. It gives a more complete picture of the loan’s cost than the advertised interest rate alone.
Australian lenders are legally required to display a comparison rate alongside any advertised home loan interest rate. This rule is designed to help borrowers compare loans on a more equal basis.
What does a comparison rate include?
A comparison rate combines the interest rate with most upfront and ongoing fees associated with the loan. The result is a single percentage that reflects more of the loan’s total cost.
Some of fees that are typically rolled into the comparison rate include the following:
The comparison rate folds costs into a single figure. A loan with a low advertised interest rate but high fees may show a higher comparison rate than expected.
What is not included in the comparison rate?
Several costs are left out of the comparison rate calculation. Knowing what is excluded helps set realistic expectations about total borrowing costs.
The following fees are not included:
- Government fees and charges, such as stamp duty and mortgage registration fees, are excluded from the comparison rate.
- Fees for optional features, such as offset accounts or redraw facilities, are not included.
- Late payment fees sit outside the comparison rate calculation.
- Lenders Mortgage Insurance (LMI) is excluded from the comparison rate.
- Charges introduced after the comparison rate was advertised are not captured.
Because these costs sit outside the comparison rate, the figure does not capture the full picture of what a borrower may pay.
How is the comparison rate calculated?
Home loan comparison rates are calculated on a standardised loan amount of $150,000 over a 25-year term, based on monthly repayments. This standardised approach means every lender uses the same formula, so borrowers can compare products on an equal footing.
The calculation is regulated under Australian credit regulations. The comparison rate must be accurate to at least the nearest one hundredth of one per cent per annum.
Because the calculation is based on $150,000, it may not reflect the proportional cost of fees on larger loans.
A fixed establishment fee of, say, $600 has a much smaller proportional impact on a $750,000 loan than on a $150,000 loan. However, the comparison rate does not adjust for this difference.
A worked example
Two loans are advertised at similar interest rates but carry different fee structures. The comparison rate reveals which costs more overall.
- Loan A. A 5.80% p.a. interest rate with low fees and a comparison rate of around 5.90% p.a.
- Loan B. A 5.60% p.a. interest rate with higher fees and a comparison rate of around 6.00% p.a.
Despite Loan B having a lower interest rate, its higher fees result in a higher comparison rate. The comparison rate shows that Loan B may cost more over the life of the loan under the standardised assumptions.
What is the difference between an interest rate and a comparison rate?
The interest rate is the percentage of the loan balance charged as interest each year, and it does not include any fees. The comparison rate includes that same interest rate, plus most of the fees and charges linked to the loan. This is why the comparison rate is almost always higher than the advertised interest rate.
When the gap between the two rates is large, it signals that the loan carries significant fees beyond the interest charged. When the two rates are close together, it indicates that fees are relatively low.
What are the limitations of comparison rates?
Comparison rates are a useful starting point, but they have several known limitations that are worth understanding.
The standard loan amount may not match your situation
The $150,000 / 25-year benchmark is standardised for consistency, not for accuracy to individual circumstances. Borrowers with larger or smaller loans, or different loan terms, will see a different fee-to-interest ratio than the comparison rate implies.
Optional features are excluded
Offset accounts and redraw facilities are not included in the comparison rate. A loan with an offset facility may carry a slightly higher comparison rate, yet it can still provide financial benefits that are not visible in the number itself.
Variable rates can change
For variable rate loans, the comparison rate is based on the current interest rate. It does not predict future rate movements.
If interest rates rise or fall, the actual cost of the loan will change. The published comparison rate will not reflect that until it is recalculated.
Introductory rates are not fully captured
Some loans include promotional or honeymoon rates that apply for a limited period before reverting to a higher ongoing rate. The comparison rate takes into account the revert-to rate that applies after the set period. This means the comparison rate for these products may be higher than the introductory rate suggests.
Government costs and LMI are excluded
Stamp duty, mortgage registration fees, and LMI are all outside the comparison rate. LMI in particular can range from thousands to tens of thousands of dollars depending on the loan size and deposit level.
How to read a comparison rate warning
Australian lenders are required by law to display a warning alongside any comparison rate. The standard warning states that the comparison rate is true only for the example given and may not include all fees and charges.
This warning is a factual reminder that different loan amounts, terms, or fee structures will produce different comparison rates. A comparison rate advertised on a $150,000 loan over 25 years will not match the effective rate for a $700,000 loan over 30 years.
Common misconceptions about comparison rates
Misconception: the comparison rate is what you actually pay
The comparison rate is a standardised comparison tool, not a statement of your repayment rate. Repayments are calculated using the actual interest rate on your loan, not the comparison rate.
Misconception: a lower comparison rate always means a better loan
A lower comparison rate reflects lower combined interest and fee costs under the standard assumptions. It does not account for loan features, repayment flexibility, or borrower-specific circumstances. A loan with a slightly higher comparison rate may suit a particular borrower’s situation better than a lower-rate product with fewer features.
Misconception: all fees are included
Several common and significant fees sit outside the comparison rate. These include government charges, LMI, and fees for optional features. These need to be assessed separately.
Misconception: comparison rates can be compared across all loan types
Comparison rates for different loan structures are calculated differently. Rates that use a revert-to rate after an initial period are built differently to those based on a single ongoing rate. This means they do not produce a like-for-like result when compared directly.
Frequently asked questions
What does a comparison rate mean on a home loan?
A comparison rate is a single percentage figure that combines the loan’s interest rate with most of its fees and charges. It is designed to give a more complete view of the loan’s cost than the advertised interest rate alone. All Australian lenders are legally required to display it alongside any advertised home loan interest rate.
Why is the comparison rate higher than the interest rate?
The comparison rate is higher because it includes fees on top of the interest rate. Application fees, ongoing service fees, settlement fees, and discharge fees are folded into the calculation. The larger the fee load on a loan, the wider the gap between the interest rate and the comparison rate.
Is the comparison rate the rate I’ll be charged on my loan?
The comparison rate is not used to calculate your repayments. Your repayments are based on your actual interest rate.
The comparison rate is a standardised tool for comparing loans, calculated on a $150,000 loan over 25 years. It will not match your personal loan amount or term.
What fees are not included in the comparison rate?
Several costs are left out of the comparison rate, including government charges, LMI, fees for optional features like offset accounts, late payment fees, and charges introduced after the rate was advertised.
Can I compare different loan structures using their comparison rates?
Comparison rates can be structured differently across loan types. Some use the current interest rate throughout, while others include a revert-to rate that applies after an initial period. A direct comparison using only comparison rates may not produce a like-for-like result across different loan structures.
Does the comparison rate change if I borrow more than $150,000?
The published comparison rate is always calculated on $150,000 over 25 years, regardless of how much you borrow. The proportional impact of fixed fees is lower on larger loans, so the comparison rate may overstate the fee burden for higher loan amounts. Some lenders offer personalised comparison rate tools to help you work out a rate based on your specific loan amount and term.
About Unloan
Unloan is a low-rate variable home loan built by CommBank — Australia’s largest lender. Unloan has won the Canstar Outstanding Value Award for Variable Home Loan Lender in 2023, 2024, 2025, and 2026.
The variable rate includes a loyalty discount that grows by 0.01% p.a. every year you stay (up to 30 years). Apply online in minutes, manage your loan through the app, and access unlimited free redraw. Live Australian support from home loan specialists is available when you need it.
Use Unloan’s borrowing power calculator for an estimate of how much you may be able to borrow. To research suburbs, property types, and prices, try our Check a property tool.
Unloan is a division of Commonwealth Bank of Australia.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. If you currently have an Unloan home loan with an active Lender’s Mortgage Insurance (LMI) policy the maximum amount you can borrow across all Unloan loans is $3,000,000. Please note Unloan currently doesn’t offer loans with an LMI premium. In some cases, depending on the property’s location or type, we may only be able to lend you up to 70% of the property’s value.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Unloan is a division of Commonwealth Bank of Australia, and Commonwealth Bank does not provide tax (financial) advice under the Tax Agent Services Act 2009 (Cth). You should consider seeking independent tax advice from a registered tax agent, accountant or adviser before you make any decisions based on this information.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. If you currently have an Unloan home loan with an active Lender’s Mortgage Insurance (LMI) policy the maximum amount you can borrow across all Unloan loans is $3,000,000. Please note Unloan currently doesn’t offer loans with an LMI premium. In some cases, depending on the property’s location or type, we may only be able to lend you up to 70% of the property’s value.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
