Sign up for our FREE 8-week course to get on the property ladder.
The comparison rate on a home loan takes into account the interest rate and the cost of fees. Lenders display an example comparison rate for every home loan, but it's not particularly accurate. Using a comparison rate calculator can help you figure out your own comparison rate.
The comparison rate takes into account the interest rate and a range of fees and charges that apply to a loan, and is represented as a percentage figure. It was introduced as a way to stop lenders advertising a great low interest rate for their loan and then slugging borrowers with a whole bunch of hidden fees.
Using the comparison rate when comparing home loans is the best way to ensure that you are getting a good deal.
How can I compare home loans using the comparison rate?
Shopping around for home loans can be a daunting process with various numbers, percentages and technical terms thrown around to confuse borrowers.
In the past, unscrupulous lenders would lure in borrowers with an interest rate that was too good to be true, and the borrower wouldn’t realise that there was a range of fees and charges attached to the loan.
The end result was people having to manage unexpected application, establishment and ongoing loan fees, meaning they were taking out loans that were much more expensive than they thought. In an effort to put a stop to this, the Australian government introduced the comparison rate as a mandatory requirement to show the true cost of a mortgage.
Lenders must show the comparison rate whenever they advertise a home loan, so look past the interest rate to see this all-important figure. You’ll then be able to see how the comparison rates of different home loans stack up against one another, giving you a better idea as to which loan is the most affordable.
However, the comparison rate is not without faults. A comparison rate can only use a certain number of examples, and in the case of home loans this is usually a $150,000 loan taken out over a 25-year loan term (rather than the industry-standard 30 years). This means for any loans larger than this, the comparison rate provided by lenders won’t be as helpful, it at all.
How to use the personalised comparison rate calculator
Finder's personalised comparison rate calculator is easy and intuitive to use. While the actual formula used to work out a comparison rate is quite complex, the calculator makes it simple for you to see how a number of loans compare to one another; all you’ll have to do is key in a few important details.
You’ll need to provide:
- Loan term
- Loan amount
- The fixed interest rate and fixed period (if you’re opting for a fixed rate loan)
- The ongoing rate
- Upfront fees
- Ongoing monthly or annual fees
- Loan discharge fee
Once you’ve entered all the relevant details simply click ‘Calculate’ to be presented with the comparison rate for your loan. You’ll also be presented with your regular repayment amounts, a figure that represents the total amount of repayments you will need to make towards your loan, and a handy graph that demonstrates how long it will take you to pay off the interest and the principal amount on your mortgage.
Our personalised comparison rate calculator is a useful tool for borrowers and can help you get a clear picture of how much your loan will cost you on an ongoing basis and over its entire term. If you’re looking to compare a range of loans, the calculator can help you cut through the advertising campaigns and promotional offers to discover how much a loan is really worth.
Of course, you should also keep in mind that certain fees - including redraw fees, stamp duty costs and early termination or break fees - are not included in a comparison rate. In addition, you should consider other factors when choosing a home loan, including things like flexible repayment options, redraw facilities, linked financial products, the reputability of a lender and more when choosing a home loan.
More guides on Finder
Home Loan rate rise calculator
Use our simple rate rise calculator to work out how much extra interest you have to pay when interest rates rise.
Lenders mortgage insurance (LMI) calculator
Finder's simple, free LMI calculator can help you estimate your lenders mortgage insurance premiums.
Capital gains tax calculator
Estimate your CGT when selling an investment property or other asset with Finder's simple capital gains tax calculator.
Home equity calculator
Home equity can help you access extra financing from lenders to spend on things like home renovations or investment properties. Find out how you can calculate the equity in your home.
Interest-only Home Loan Calculator
Estimate the cost of your repayments if you only pay the interest portion of your loan with an interest-only mortgage.
Calculate how long will it take to pay off my loan?
Wondering 'how long will it take to pay off my loan?' Use our free calculator to see how long it will take to pay off your mortgage.
Lump sum repayment calculator
Use a lump sum repayment calculator to see how much you can save in interest and fewer mortgage repayments. It's quick, free and easy to use.
Home loan extra repayment calculator
Our extra loan repayment calculator helps you see how you could save big on interest. Free, fast and easy to use - calculate in 1 minute!
Mortgage repayment calculator
Want to know how to calculate monthly repayments on your new mortgage? In five steps our free home loan repayment calculator crunches the numbers for you.
Find the right home loan now
Ask an Expert