What Is a Comparison Rate?

A comparison rate merges interest and fees to show a loan's true cost.

The comparison rate is a tool that helps you identify the true costs of different home loans.  It takes into account the interest rate charged on the loan as well as certain fees and charges that may apply.

How does it help you?

By using the comparison rate, borrowers can more easily see which loan option offers the best overall value, rather than just the lowest interest rate. Be aware though that comparison rates do not include all fees and charges and our calculated using prescribed loan amounts.

In Australia, it is mandatory for lenders to display the comparison rate as well as the basis for how it was calculated alongside the advertised interest rate for any home loan product.  This allows borrowers to compare the costs of different loans and help them make a more informed decision about which one is right for them more easily.

How is a comparison rate calculated?

The formula for calculating the comparison rate is regulated by the Consumer Credit Code and all lenders use the same formula.

The loan's interest rate, as well as some of the initial costs, ongoing costs, and other charges, are taken into account by this formula. The comparison rate is calculated on a loan value of $150,000 over a 25-year term, so it’s important to consider how your circumstances may affect this.

For example, if you had a much higher loan value then interest would be likely to make more of an impact on how much you repay rather than fees.  Alternatively, if you had a very small loan amount or a short term, fees would proportionally make up more of your repayments.

If you're looking to switch to low variable rates, that have an in-built discount every year (up to 30 years) you can switch to Unloan.

This article does not have regard for the financial situation or needs of any reader and must not be relied upon as financial product advice. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on this, consider the appropriateness to your circumstances.

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