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What is a Comparison Rate?

comparison rate

Home Loan Comparison Rate

Did you know that lenders are legally required to display a comparison rate when advertising any loan?

According to ASIC’s MoneySmart a comparison rate is a rate that helps you work out the true cost of a loan. It reduces to a single percentage figure the interest rate plus most fees and charges relating to a loan. The comparison rate allows you to compare loans from different lenders to find out how much it will cost you.

With so many different home loans with different rates and different fees it can be very difficult to make a good comparison.

Comparison rate example as per  ASIC’s MoneySmart:

comparison rate example

In the example above, home loan B will cost less than home loan A. Even though home loan A has a lower interest rate.

The comparison rate helps you work out the true cost of a loan. It is a figure derived from the amount of the loan, the length of the loan, the repayment frequency, the interest rate, and the fees and charges connected with the loan.

Make sure when looking at comparison rates that the term and loan amount is as close as possible to what you are planning to borrow.

Look at more than the Comparison Rate

The Comparison rate is obvious very important in the decision process for a home loan. But there are many other important things to consider such as the features that the loan provides. Such as:

  • Is there a linked offset account?
  • Can you make extra repayments?
  • Is there a redraw facility?


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