The comparison rate isn't a good comparison anymore: here's why | Finder

Why the comparison rate isn’t a good comparison anymore

The comparison rate is a handy tool, but counting on it could see you paying too much.

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When you’re comparing home loans, the headline interest rate only tells part of the story. While a low interest rate can help you save serious money on your loan, a low-rate loan with hefty fees can eat up these savings in the long run.

This is where a comparison rate comes in. A comparison rate takes into account a home loan’s headline interest rate as well as the accompanying fees and expresses these as a single annual percentage. This is a much better tool for determining the true cost of a home loan.

There’s one major problem with comparison rates, though. The way they’re calculated is light-years away from what you’re likely to experience with your home loan.

In 2003, the Australian government made it mandatory for lenders to display comparison rates in their advertising. The idea was that displaying a uniformly calculated comparison rate would help consumers suss out the cost of the various loan products in the market.

A lot has changed since 2003.

As per the government’s guidelines, advertised comparison rates are all calculated on the same loan amount and term. The problem with this is that house prices have skyrocketed since 2003. Meanwhile, the way advertised comparison rates are calculated hasn’t changed.

Advertised comparison rates are based on a $150,000 loan over a 25-year term. With the median capital-city dwelling price now above $630,000, it’s highly unlikely your home loan is going to fit these criteria.

As we’ll find out below, changing the terms of a loan can have a significant impact on the loan’s comparison rate. Let’s look at three comparison rates, all pulled from advertising by real lenders.

Advertised comparison rates

  • Lender A Comparison Rate: 3.72%
  • Lender B Comparison Rate: 3.74%
  • Lender C Comparison Rate: 3.81%

We visited each lender’s website to find out how this comparison rate would change under more realistic borrowing circumstances. Fortunately, by law, lenders must provide you a document known as a Key Facts Sheet when you’re applying for a home loan. This document will give you the comparison rate for your specific borrowing amount and loan term. We entered our own info to generate Key Facts Sheets for each of the lenders.

To get a better picture of how different factors can influence a comparison rate, we generated Key Facts Sheets based upon the median Sydney dwelling value of $880,000 and a 10% deposit, leaving a loan amount of $792,000.

When we entered this information on each lender’s website, the results were surprising.

Actual comparison rates

  • Lender A Comparison Rate: 3.79%
  • Lender B Comparison Rate: 3.74%
  • Lender C Comparison Rate: 3.78%

After entering these figures for each lender, we found the lender with the cheapest advertised comparison rate actually became the most expensive. Meanwhile, the lender with the most expensive advertised comparison rate actually became cheaper under these criteria.

While the difference in the comparison rates above might seem insignificant, this small change can add up over the life of your loan. Over the course of a 30-year loan term, the total amount you would pay for Lender A’s product would be $1,328,418.80. The total amount for Lender B would be $1,318,818, and the total amount for Lender C would be $1,324,861.40.
The loan with the most expensive advertised comparison rate ends up being $3,557.40 less expensive than the loan with the least expensive advertised comparison rate. Meanwhile, the loan in between the two ends up a whopping $9,600.80 less expensive.

The reasons for this can vary. Some home loans incentivise higher borrowing amounts with lower interest rates. Others might incentivise lower loan-to-value ratios and charge higher rates to borrowers with a smaller deposit. A longer loan term can also add to the total amount of interest you pay.

With this in mind, it pays to generate your own Key Facts Sheet for your expected borrowing amount with lenders you’re considering. The advertised comparison rate can be a helpful tool when you’re considering home loans, but if you don’t take the time to dig a bit deeper, you could end up paying thousands more.

Ready to compare home loan rates? Check out today's rates in the table below

Data updated regularly
$
years
Name Product Interest Rate (p.a.) Comp. Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
Westpac Flexi First Option Home Loan
2.29%
2.72%
$0
$8 monthly ($96 p.a.)
95%
$577.55
Up to $3,000 refinance cashback.
A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.
St.George Fixed Rate Advantage Package
1.84%
3.38%
$0
$395 p.a.
80%
$543.64
Up to $4,000 refinance cashback
Borrowers with 20% deposits or equity can get this competitive fixed rate loan. Refinancers borrowing $250,000 or more can get up to $4,000 cashback (Other terms, conditions and exclusions apply).
HSBC Fixed Rate Home Loan Package
1.88%
2.86%
$0
$390 p.a.
80%
$546.6
$3,288 refinance cashback offer
Lock in a low fixed rate for 2 years and buy your home with a 20% deposit. Eligible refinancers borrowing $250,000 or more can get a $3,288 cashback. Terms and conditions apply.
UBank UHomeLoan Fixed
1.75%
2.22%
$0
$0 p.a.
80%
$537
This very low fixed rate is only available until 29 April 2021. Other conditions apply. A competitive fixed rate loan with no ongoing fees. Requires a 20% deposit
Westpac Fixed Option Home Loan Premier Advantage Package
1.89%
3.46%
$0
$395 p.a.
95%
$547.35
Up to $3,000 refinance cashback.
Eligible borrowers refinancing $250,000 or more can get up to $3,000 cashback. Other conditions apply.
St.George Basic Home Loan
2.49%
2.51%
$0
$0 p.a.
80%
$593.01
Up to $4,000 refinance cashback
Get this low-rate variable loan with a 20% deposit and pay $0 application fee. Borrow from $150k (or $250k to be eligible for the cashback offer) (terms, conditions & exclusions apply).
Suncorp Home Package Plus Fixed
1.89%
2.85%
$0
$0 p.a.
80%
$547.35
Lock in a low fixed rate loan for two years and get the annual package fee waived in the first year. Available for borrowers with 20% deposits.
Athena Variable Home  Loan
2.19%
2.19%
$0
$0 p.a.
60%
$569.91
Owner occupiers with 40% deposits or equity can get this competitive variable rate loan. No upfront or ongoing fees.
loans.com.au Smart Booster Discount Variable Home Loan
1.99%
2.47%
$0
$0 p.a.
80%
$554.81
Home buyers can get a very low discounted variable rate for the first year. This loan has a revert rate of 2.48%. Requires a 20% deposit. Add an offset account for an additional 0.10% on your interest rate.
AMP Bank Professional Package Fixed Loan
1.99%
3.1%
$0
$0 p.a.
80%
$554.81
Get a low fixed rate package with no application or settlement fee, that's available with a 20% deposit. Other fees and charges apply.
Macquarie Bank Basic Fixed Home Loan
2.09%
2.43%
$0
$0 p.a.
70%
$562.33
Get a low interest rate and a mortgage with flexible, basic features. No application or ongoing fees. Requires a 30% deposit. Refinancers can switch with a convenient digital application.
Well Home Loans Balanced Fixed Home Loan
1.89%
2.18%
$250
$0 p.a.
90%
$547.35
Owner occupiers can get a sharp fixed rate for the first year, plus an offset account. Available with a 10% deposit.
UBank UHomeLoan Variable Rate
2.34%
2.34%
$0
$0 p.a.
80%
$581.39
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
HSBC Home Value Loan
2.44%
2.45%
$0
$0 p.a.
80%
$589.12
$3,288 refinance cashback offer
Get a low interest variable rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online. If you're refinancing $250,000 or above you can get a $3,288 cashback. Terms and conditions apply.
UBank UHomeLoan Fixed
1.99%
2.33%
$0
$0 p.a.
80%
$554.81
Fix your mortgage for 1 year with a very competitive rate and no ongoing fees.
86 400 Own Home Loan Fixed
2.15%
2.62%
$250
$250 p.a.
80%
$566.87
$2,000 cashback offer
A competitive fixed rate loan from an online-only smart bank. Requires a 20% deposit. Eligible new borrowers and refinancers can get a $2,000 cashback for a limited time.
Greater Bank Great Rate Fixed Home Loan
1.69%
3.49%
$0
$0 p.a.
110%
$532.6
Requires a family member to act as guarantor.
Get one of the lowest rates on the market with this fixed rate mortgage and borrow more with help from a family guarantor. NSW, QLD and ACT residents only.
Macquarie Bank Basic Home Loan
2.49%
2.49%
$0
$0 p.a.
60%
$593.01
A competitive variable rate home loan for owner-occupiers. Requires a 40% deposit. Refinancers can switch with a convenient digital application.
ME Flexible Home Loan Fixed with Members Package
1.99%
3.33%
$0
$395 p.a.
80%
$554.81
Lock in a competitive rate for owner occupiers for two years. Comes with a 100% offset account.
Suncorp Back to Basics Home Loan
2.44%
2.45%
$0
$0 p.a.
80%
$589.12
A competitive variable interest rate loan with low fees. The establishment fee is waived if you borrow $150,000 or more.
86 400 Neat Variable Home Loan
2.19%
2.2%
$0
$0 p.a.
60%
$569.91
Get flexibility and the option to make unlimited extra repayments with this variable rate loan.
IMB Fixed Rate Home Loan
1.97%
2.81%
$449
$6 monthly ($72 p.a.)
95%
$553.31
NSW and ACT customers only. 3 years fixed interest terms and free access to redraw facility online. Available with a 10% deposit.
Well Home Loans Balanced Variable
2.17%
2.2%
$250
$0 p.a.
80%
$568.39
A very low interest rate for home buyers with 20% deposits saved. Add an offset account for a small fee.
homeloans.com.au Low Rate Home Loan with Offset
2.14%
2.16%
$0
$0 p.a.
60%
$566.11
A competitive rate with no application or ongoing fees. This loan is not available for construction.
Virgin Money Reward Me Fixed Rate Home Loan
2.04%
2.79%
$300
$10 monthly ($120 p.a.)
80%
$558.56
$3,000 refinance cashback.
Buy your home and lock in a low rate for the first two years. Get a $3,000 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 27 February 2021 and settle by 27 August 2021.
Bank of Melbourne Basic Home Loan
2.49%
2.51%
$0
$0 p.a.
80%
$593.01
Up to $4,000 refinance cashback
A competitive variable rate loan. Refinancers borrowing $250,000 or more can get up to $4,000 cashback (Other terms, conditions and exclusions apply).
Well Home Loans Balanced Fixed Home Loan
1.95%
2.17%
$250
$0 p.a.
90%
$551.82
A low fixed mortgage with an optional 100% offset account. Not available for construction purposes.
homeloans.com.au Low Rate Home Loan with Offset
2.24%
2.26%
$0
$0 p.a.
90%
$573.72
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.
BankSA Basic Home Loan
2.49%
2.51%
$0
$0 p.a.
80%
$593.01
Up to $4,000 refinance cashback
A competitive variable rate loan from BankSA. Refinancers borrowing $200,000 or more can get up to $4,000 cashback (Other terms, conditions and exclusions apply).
Bank of Melbourne Advantage Package Fixed Home Loan
1.94%
3.21%
$0
$395 p.a.
80%
$551.07
Up to $4,000 refinance cashback
Lock in a low fixed rate loan for four years. Refinancers borrowing $250,000 or more can get up to $4,000 cashback (Other terms, conditions and exclusions apply).
CUA Achieve Variable Home Loan
2.35%
2.4%
$600
$0 p.a.
95%
$582.16
Home buyers can get a competitive, low-fee variable rate plus a 100% offset account. Low deposit option available. Eligible new home buyers with low deposits can apply for the First Home Loan Deposit Scheme with this lender and avoid LMI costs. Eligible refinancers can get a $2,000 pre-paid credit card when they switch to CUA.
Westpac Fixed Option Home Loan Premier Advantage Package
1.99%
3.29%
$0
$395 p.a.
95%
$554.81
Up to $3,000 refinance cashback. Lock in a very low rate for four years with this owner occupier loan. Eligible borrowers refinancing $250,000 or more can get up to $3,000 cashback. Other conditions apply.
BankSA Advantage Package Fixed Home Loan
1.89%
3.43%
$0
$395 p.a.
80%
$547.35
Up to $4,000 refinance cashback.
Fix to a low rate for two years and forget about rate rises. Refinancers borrowing $200,000 or more can get up to $4,000 cashback (Other terms, conditions and exclusions apply).
Bank of Melbourne Advantage Package Fixed Home Loan
1.84%
3.38%
$0
$395 p.a.
80%
$543.64
Up to $4,000 refinance cashback
Get a competitive home loan rate for two years. Requires at least a 20% deposit. Refinancers borrowing $250,000 or more can get up to $4,000 cashback (Other terms, conditions and exclusions apply).
loans.com.au Fixed
1.99%
2.7%
$0
$0 p.a.
80%
$554.81
Home buyers can lock in this low fixed rate for two years. This loan also allows extra repayments. Requires a 20% deposit.
BankSA Advantage Package Fixed Home Loan
1.99%
3.26%
$0
$395 p.a.
$554.81
Up to $4,000 refinance cashback
A competitive fixed rate loan. Refinancers borrowing $200,000 or more can get up to $4,000 cashback (Other terms, conditions and exclusions apply).
Heritage Bank Fixed Rate Home Loan
2.19%
4.23%
$600
$8 monthly ($96 p.a.)
95%
$569.91
Get a partial offset account and the option to make interest-only repayments.
St.George Fixed Rate Advantage Package
1.94%
3.21%
$0
$395 p.a.
80%
$551.07
Up to $4,000 refinance cashback
Lock in a very low rate for four years. Requires a 20% deposit. Refinancers borrowing $250,000 or more can get up to $4,000 cashback (Other terms, conditions and exclusions apply).
Athena Variable Home  Loan
2.24%
2.21%
$0
$0 p.a.
70%
$573.72
A low variable rate for owner occupiers with 30% deposits. No upfront or ongoing fees.
Newcastle Permanent Building Society  Premium Plus Package Fixed Rate
2.28%
3.84%
$0
$395 p.a.
95%
$576.78
$2,000 refinance cashback
Enjoy a competitive rate with no application fee for this package loan. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
ME Flexible Home Loan Fixed with Members Package
2.09%
3.27%
$0
$395 p.a.
80%
$562.33
Get a low 3 year fixed rate with a 100% offset account and package discounts.
Greater Bank Great Rate Discount Variable with Family Pledge Home Loan
2.59%
2.6%
$0
$0 p.a.
110%
$600.83
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.
IMB Budget Home Loan
2.58%
2.64%
$449
$0 p.a.
80%
$600.05
A competitive variable rate for borrowers with 20% deposits saved. Available for NSW and ACT borrowers only.
Well Home Loans Balanced Fixed Home Loan
2.29%
2.29%
$250
$0 p.a.
90%
$577.55
A competitive 3 year investor rate with principal and interest repayments. Optional offset account with a $10 monthly fee. Not available for construction purposes.
homeloans.com.au Low Rate Home Loan with Offset
2.69%
2.52%
$0
$0 p.a.
80%
$608.71
A competitive rate with no application or ongoing fee. This loan is not available for construction.
ME Basic Home Loan
2.58%
2.6%
$0
$0 p.a.
80%
$600.05
This variable rate loan keeps the features simple and fees low. This loan is offered by a 100% online lender.
UBank UHomeLoan Fixed
2.14%
2.35%
$0
$0 p.a.
80%
$566.11
A one year fixed rate offer with no ongoing bank fees.
Heritage Bank Discount Variable Home Loan
2.59%
2.64%
$600
$0 p.a.
80%
$600.83
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
UBank UHomeLoan Fixed
2.14%
2.71%
$0
$0 p.a.
80%
$566.11
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
ME Flexible Home Loan Fixed
2.64%
4.65%
$0
$0 p.a.
80%
$604.76
Lock in a competitive rate for 2 years, unlock package discounts and use a 100% offset account to minimise interest payments.
Heritage Bank Advantage Package Fixed
2.39%
3.15%
$0
$350 p.a.
95%
$585.25
Get a partial offset account and flexible repayments with this package loan.
homeloans.com.au Low Rate Home Loan with Offset
2.59%
2.42%
$0
$0 p.a.
60%
$600.83
Macquarie Bank Offset Home Loan Package
2.49%
2.76%
$0
$0 p.a.
60%
$593.01
A sharp variable rate with low fees for borrowers with 40% deposits or refinancers with equity in their properties. Refinancers can switch with a convenient digital application.
loans.com.au Smart Booster Discount Variable Home Loan
1.99%
2.71%
$0
$0 p.a.
80%
$554.81
If you have an owner occupier loan with loans.com.au you can also get this very low rate variable mortgage for your investment property. Principal and interest repayments. Add an offset account for an additional 0.10% on your interest rate.
homeloans.com.au Low Rate Home Loan with Offset
2.74%
2.76%
$0
$0 p.a.
90%
$612.67
Access a fee-free offset account and a special interest rate for investors. This loan is not available for construction.
St.George Basic Home Loan
2.54%
2.56%
$0
$0 p.a.
90%
$596.91
$2,000 cashback.
With this competitive variable rate loan from St.George, refinancers borrowing $250,000+ can get a $2,000 cashback (terms, conditions & exclusions apply)
Macquarie Bank Basic Fixed Home Loan
2.19%
2.53%
$0
$0 p.a.
80%
$569.91
Borrow up to $750,000 with this basic 3 years fixed rate home loan. Refinancers can switch with a convenient digital application.
Bank of Melbourne Basic Home Loan
2.54%
2.56%
$0
$0 p.a.
90%
$596.91
$2,000 cashback
A competitive variable rate loan. Refinancers borrowing $250,000 or more can get a $2,000 cashback (Other terms, conditions and exclusions apply).
homeloans.com.au Low Rate Home Loan with Offset
2.39%
2.41%
$0
$0 p.a.
80%
$585.25
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account. This loan is not available for construction.
IMB Budget Home Loan
2.68%
2.74%
$449
$0 p.a.
95%
$607.92
NSW and ACT customers only. You can get an interest rate discount for a limited time with this competitive variable mortgage.
Newcastle Permanent Building Society Real Deal Home Loan
2.59%
2.63%
$595
$0 p.a.
80%
$600.83
$2,000 refinance cashback
$2,000 cashback for eligible refinancers borrowing $250,000 or more.
UBank UHomeLoan Variable Rate
2.74%
2.74%
$0
$0 p.a.
80%
$612.67
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
Virgin Money Reward Me Variable Home Loan
2.59%
2.76%
$300
$10 monthly ($120 p.a.)
60%
$600.83
$3,000 refinance cashback.
A variable rate loan for owner occupiers with a 40% deposit (or equity) borrowing under $500,000. Get a $3,000 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 27 February 2021 and settle by 27 August 2021.
homeloans.com.au Low Rate Home Loan with Offset
2.29%
2.31%
$0
$0 p.a.
60%
$577.55
A competitive rate with no application or ongoing fee. This loan is not available for construction.
ME Flexible Home Loan Fixed
2.14%
3.95%
$0
$0 p.a.
80%
$566.11
Get a low fixed rate and pay no application or ongoing fees.
IMB Fixed Rate Home Loan
2.09%
2.9%
$449
$6 monthly ($72 p.a.)
95%
$562.33
NSW and ACT customers only. Lock in a low fixed rate for two years. Available with a 5% deposit.
Newcastle Permanent Building Society  Premium Plus Package Fixed Rate
2.48%
3.77%
$0
$395 p.a.
95%
$592.23
$2,000 refinance cashback
Enjoy a discounted fixed rate and the ability to package the loan with other financial products. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
homeloans.com.au Low Rate Home Loan with Offset
2.59%
2.61%
$0
$0 p.a.
90%
$600.83
Save on interest with a free 100% offset account and buy your property with just a 10% deposit. This loan is not available for construction.
IMB Fixed Rate Home Loan
2.49%
3.36%
$449
$6 monthly ($72 p.a.)
90%
$593.01
NSW and ACT customers only. A 3 years fixed rate investor which allows extra repayments to be made.
ME Flexible Home Loan With Member Package
2.59%
3.05%
$0
$395 p.a.
80%
$600.83
$2,000 cashback offer
A competitive variable rate package home loan with a 100% offset account. Eligible refinancers can get a $2,000 cashback.
UBank UHomeLoan Fixed
2.29%
2.72%
$0
$0 p.a.
80%
$577.55
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
HSBC Home Value Loan
2.54%
2.55%
$0
$0 p.a.
90%
$596.91
A competitive value home loan with no ongoing fee.
Well Home Loans Balanced Fixed Home Loan
2.04%
2.17%
$250
$0 p.a.
90%
$558.56
A low 3 year fixed rate for home buyers. Add a 100% offset account with a $10 monthly fee. Not available for construction purposes.
Newcastle Permanent Building Society Fixed Rate Home Loan
2.58%
3.99%
$595
$0 p.a.
95%
$600.05
$2,000 refinance cashback
Borrow up to 95% LVR of the value of the property you're buying and pay no ongoing fees. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
Macquarie Bank Basic Home Loan
2.64%
2.64%
$0
$0 p.a.
80%
$604.76
Pay no application and ongoing fees and take advantage of split and redraw options. Refinancers can switch with a convenient digital application.
Well Home Loans Balanced Variable
2.52%
2.55%
$250
$0 p.a.
90%
$595.35
A very low variable interest rate for borrowers with a 10% deposit. Add a 100% offset account for $10 a month. Not available for construction purposes.
Newcastle Permanent Building Society Premium Plus Package Home Loan
2.94%
3.34%
$0
$395 p.a.
95%
$628.65
$2,000 refinance cashback
New borrowers or refinancers can get a discounted rate with this package loan. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
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