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What is a comparison rate?

How a comparison rate helps you judge the true value of your mortgage.

A comparison rate is a rate that all lenders by law must display next to their advertised interest rates. It's a rate which takes into account some of the fees and charges of a home loan to give you a more accurate representation of a loan's interest rate once the costs are taken into account.

Compare mortgages by interest and comparison rate

A comparison rate on a home loan is usually worked out using the example loan of $150,000 over 25 years. Personal loan comparison rates usually have an example loan of $30,000 over 5 years.

Comparison rates were made mandatory in an attempt to stop lenders from advertising incredibly low interest rates that lured unsuspecting borrowers into loans that actually cost them far more than they expected.

What's the difference between the interest rate and comparison rate?

The interest rate is the percentage amount most people take notice of when they try to compare home loans. This is the percentage of interest that you will be charged on your loan. But it doesn't consider all your costs. The comparison rate is a percentage amount calculated by adding together the interest rate, plus any additional fees and charges that may apply to the loan. The total figure is then converted into a percentage rate to highlight the true cost of the loan.

Lenders are unable to hide any fees, charges or other costs, as these are reflected in the overall comparison rate.

How do you calculate the comparison rate?

If the comparison rate you're given isn't reflective of your loan amount or your preferred loan term, it is possible to calculate this yourself. The comparison rates are actually calculated using a formula that is governed by the Uniform Consumer Credit Code (UCCC). The calculation is not simple, so you may find that using a good comparison rate calculator will make this easier for you. Before you begin, you will need the following information:

  • Loan amount
  • Loan term
  • Repayment frequency
  • Interest rate
  • Monthly account fee (if any)
  • Annual fee (if any)
  • Establishment fee (if any)
  • Valuation fee (if any)
  • Mortgage documentation fee (if any)
  • Settlement fee

When you have all this information, you're able to enter it all into a good comparison rate calculator and reach a percentage rate that more accurately displays the real cost of a home loan.

How do lenders calculate the comparison rate?

The comparison rate is calculated using a formula that takes into account a number of items. These include:

Interest Rate

The actual interest rate charged by the bank for your home loan is a major factor in calculating the comparison rate.

Fees and Charges

Many lenders charge a monthly account fee for their mortgage accounts. Some might charge an annual package fee. Some may also charge an establishment fee, valuation fee, mortgage documentation fee and settlement fee. These charges need to be taken into account when calculating the comparison rate, as they do affect the overall cost of the loan.

Loan Term

When it comes to calculating comparison rates, a longer loan term will mean a higher comparison rate. If you see a comparison rate calculated over 25 years, ask to have it reworked to reflect a 30 year term, if this is how long you intend your mortgage to be set for.

Loan Amount

The actual loan amount will also be a factor in calculating the comparison rate. Some banks actually offer discounted interest rates on larger loan amounts, so the comparison amount may actually be lower for a bigger loan amount.

Payment Frequency

The interest on your mortgage is calculated on the outstanding balance every day. This means paying your repayments more frequently will actually reduce the balance on a more regular basis, which can reduce the overall comparison rate.

What isn't included in the comparison rate?

Multiple factors are taken into consideration in an effort to reveal the true cost of a loan and arrive at a comparison rate. Unfortunately, there are some costs that won't be included in the calculations, even though they are costs that can affect how much your mortgage costs overall. These include:

  • Government stamp duty
  • Conveyancing fees
  • Late payment fees
  • Break costs or early termination fees
  • Deferred establishment fees
  • Redraw fees

How important is the comparison rate?

The example comparison rates on home loans are only guidelines for possible costs. The actual cost of your loan depends on many factors. So there's an argument that they're not very helpful.

Data indicated here is updated regularly
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Loan purpose
Offset account
Loan type
Repayment type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000
2.59%
2.59%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
loans.com.au Smart Home Loan - (Owner Occupier, P&I)
2.63%
2.65%
$0
$0 p.a.
80%
Get a low variable interest rate and pay 0 application or ongoing fees with this convenient online lender.
State Custodians Low Rate Home Loan with Offset - LVR up to 80% (Owner Occupier, P&I)
2.65%
2.67%
$0
$0 p.a.
80%
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments. This loan is not available for construction.
Greater Bank Great Rate Discount Variable with Family Pledge Home Loan - Up to 110% LVR
3.11%
3.12%
$0
$0 p.a.
110%
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, QLD and ACT only.
UBank UHomeLoan - 1 Year Fixed Rate (Owner Occupier, P&I)
2.29%
3.12%
$395
$0 p.a.
80%
Fix your mortgage for 1 year with a very competitive rate and no ongoing fees.
State Custodians Low Rate Home Loan with Offset - LVR up to 60% (Owner Occupier, P&I)
2.49%
2.51%
$0
$0 p.a.
60%
A competitive rate with no application or ongoing fee. This loan is not available for construction.
Greater Bank Great Rate Home Loan - Discounted 1 Year Fixed LVR ≤90% ($150K+ Owner Occupier)
2.19%
3.54%
$0
$0 p.a.
90%
Get one of the lowest rates on the market with this fixed rate mortgage. Available with just a 10% deposit. Guarantor option available. NSW, QLD and ACT residents only.
UBank UHomeLoan - 3 Year Fixed Rate (Owner Occupier, P&I)
2.29%
2.90%
$395
$0 p.a.
80%
A competitive fixed interest rate loan with no ongoing fees. Requires a 20% deposit.
Macquarie Bank Offset Home Loan Package - LVR ≤ 80% (Owner Occupier, P&I)
2.89%
3.16%
$0
$248 p.a.
80%
Has a 100% offset account which helps you save on the amount of interest you pay on your mortgage.
UBank UHomeLoan - 1 Year Fixed Rate (Investor, P&I)
2.44%
3.57%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
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Logo for UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000

Take advantage of a low-fee mortgage with a special interest rate of just 2.59% p.a. and a 2.59% p.a. comparison rate.

Logo for loans.com.au Essentials - Variable (Owner Occupier, P&I)
loans.com.au Essentials - Variable (Owner Occupier, P&I)

A competitive interest rate home loan with interest only options. Interest rate 2.79% p.a.
comp rate of 2.81% p.a.

Logo for loans.com.au Smart Home Loan - (Owner Occupier, P&I)
loans.com.au Smart Home Loan - (Owner Occupier, P&I)

Get a low variable interest rate and pay 0 application or ongoing fees with this convenient online lender.

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