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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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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I (*now 2.59%, drops to 2.54% on 30 Sep)
2.54%
2.46%
$0
$0 p.a.
80%
A competitive variable rate mortgage for owner occupiers $0 application and $0 ongoing fees. This interest rate falls over time as you pay off the loan. This rate will drop to 2.54% p.a on 30 September 2020 for new and existing customers. You can get this rate if you apply today.
UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate
2.49%
2.49%
$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.
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
2.64%
2.66%
$500 (waived for loans above $150,000)
$0 p.a.
80%
Refinancers borrowing $250,000 or more can get up to $3,000 cashback (Other terms, conditions and exclusions apply). A low variable interest rate for home buyers and refinancers. Application fee waived for loans above $150,000.
HSBC Home Value Loan - Promotional Offer (Owner Occupier P&I)
2.65%
2.66%
$0
$0 p.a.
80%
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online.
Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR<=90% Incl. LMI (Owner Occupier, P&I)
2.78%
2.79%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000. Refinance to an eligible Suncorp loan and get a cashback of $2,000 or $3,000, depending on your loan amount. Other conditions apply.
Athena Evaporate Home Loan - 60% to 70% LVR  Owner Occupier, P&I
2.49%
2.43%
$0
$0 p.a.
70%
A low variable rate for owner occupiers with 30% deposits. This rate takes effect from 30 September for new and existing customers. You can get this rate if you apply today.
Homestar Star Essentials Home Loan - $250K to $850K LVR up to 80% (Owner Occupier, P&I)
2.39%
2.42%
$0
$0 p.a.
80%
A low rate variable mortgage with minimal fees and redraw facility. Requires a 20% deposit. Eligible refinancers can receive up to $1,500 cashback. Conditions apply.
Virgin Money Reward Me Fixed Rate Home Loan - 2 Year $300k+ Special offer (Owner Occupier, P&I)
2.29%
2.91%
$300
$10 monthly ($120 p.a.)
80%
Buy your home and lock in a low rate for the first two years. Get a $2,500 cashback when you switch to Virgin Money with a loan amount of $300,000 or more with an LVR up to 80%. You must apply by 28 August and settle by 30 October 2020.
Athena Celebrate Home Loan - 60% LVR  Owner Occupier, P&I
2.39%
2.39%
$0
$0 p.a.
60%
A very low variable rate for home buyers with 40% deposits or equity. This rate takes effect from 30 September for new and existing customers. You can get this rate if you apply today.
Macquarie Bank Basic Home Loan - LVR ≤ 60% (Owner Occupier, P&I)
2.59%
2.59%
$0
$0 p.a.
60%
A competitive variable rate home loan for owner-occupiers. Requires a 40% deposit.
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Credit services for Aussie Select, Aussie Activate and Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 (“Aussie”) and its appointed credit representatives, Australian Credit Licence 246786. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133 (“RMG”). RMG is a wholly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945. Credit for Aussie Activate products is provided by Pepper Finance Corporation Limited ACN 094 317 647 (“Pepper”). Pepper Group Limited ACN 094 317 665, Australian Credit Licence 286655 acts on behalf of Pepper. Credit services for Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 Australian Credit Licence 246786 (“Aussie”) and its appointed credit representatives. Aussie is a trade mark of AHL Investments Pty Ltd ABN 27 105 265 861. Credit and any applicable offset accounts for Aussie Elevate are issued by Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL / Australian Credit Licence 237879.

Aussie is a trade mark of AHL Investments Pty Ltd. Aussie is a subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124. ©2020 AHL Investments Pty Ltd ABN 27 105 265 861 Australian Credit Licence 246786.

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Important Information*
Logo for Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I (*now 2.59%, drops to 2.54% on 30 Sep)
Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I (*now 2.59%, drops to 2.54% on 30 Sep)

A competitive variable rate mortgage for owner occupiers $0 application and $0 ongoing fees. This interest rate falls over time as you pay off the loan. This rate will drop to 2.54% p.a on 30 September 2020 for new and existing customers. You can get this rate if you apply today.

Logo for UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate
UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate

Take advantage of a low-fee mortgage with a special interest rate of just 2.49% p.a. and a 2.49% p.a. comparison rate.

Logo for HSBC Home Value Loan - Promotional Offer (Owner Occupier P&I)
HSBC Home Value Loan - Promotional Offer (Owner Occupier P&I)

Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online.

Logo for Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR<=90% Incl. LMI (Owner Occupier, P&I)
Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR<=90% Incl. LMI (Owner Occupier, P&I)

Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000. Refinance to an eligible Suncorp loan and get a cashback of $2,000 or $3,000, depending on your loan amount. Other conditions apply.

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