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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.

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 indicated here is updated regularly
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Loan purpose
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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
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. Eligible refinancers can receive a cashback of $2,000 or more.
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)
2.57%
2.59%
$0
$0 p.a.
80%
Get a low variable interest rate and pay 0 application or ongoing fees with this convenient online lender.
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.
Commonwealth Bank Wealth Package Fixed Home Loan - 2 Year Fixed Rate With Wealth Package (Owner Occupier, P&I, $150k+)
2.29%
3.99%
$0
$395 p.a.
95%
A competitive fixed rate package loan for home buyers. $2,000 cashback offer for eligible refinancers.
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 a $2,000 cashback per property (Other terms, conditions and exclusions apply). A low variable interest rate for home buyers and refinancers. Application fee waived for loans above $150,000.
ME Flexible Home Loan Fixed with Members Package - 2 Year Fixed Rate LVR <= 80% (Owner Occupier, P&I)
2.49%
3.41%
$0
$395 p.a.
80%
Lock in a competitive rate for owner occupiers for two years. Comes with a 100% offset account.
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.
loans.com.au Essentials - Variable (Owner Occupier, P&I)
2.79%
2.81%
$0
$0 p.a.
90%
A simple mortgage with a competitive interest rate and no application or monthly fees. Borrow up to $1000000 from a convenient online lender.
Bankwest Complete Home Loan Package Variable - $200k to <$750k LVR <=80% (Owner Occupier, P&I)
2.73%
3.18%
$0
$395 p.a.
80%
A low variable rate loan with a 100% offset account and package discounts.
Well Home Loans Balanced Fixed Home Loan - 2 Year (Owner occupier, P&I)
2.22%
2.46%
$250
$0 p.a.
90%
A low fixed mortgage with an optional 100% offset account. Not available for construction purposes.
Virgin Money Reward Me Variable Home Loan - LVR <= 60% ($750k+ Owner Occupier, P&I)
2.60%
2.77%
$300
$10 monthly ($120 p.a.)
60%
A competitive variable rate loan for home buyers with large deposits. 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.
Well Home Loans Balanced Fixed Home Loan - 3 Year (Owner Occupier, P&I)
2.27%
2.45%
$250
$0 p.a.
90%
A low 3 year fixed rate for home buyers. Add a 100% offset account with a $10 monthly fee. Not available for construction purposes.
Bank of Melbourne Basic Home Loan - Special Offer (Owner Occupiers, P&I) LVR above 60% up to 80%
2.64%
2.66%
$500 (waived for loans above $150,000)
$0 p.a.
80%
Refinancers borrowing $250,000 or more can get a $2,000 cashback per property (Other terms, conditions and exclusions apply). A low variable interest rate for home buyers and refinancers. Application fee waived for loans above $150,000.
Bluestone Prime Direct (Owner Occupier, P&I)
2.59%
2.86%
$590
$15 monthly ($180 p.a.)
70%
Bluestone's Prime Direct is a competitive variable rate home loan for borrowers with 30% deposits.
Hunter United No Regrets Home Loan - Owner Occupier
2.79%
2.79%
$0
$0 p.a.
90%
Home buyers can get a competitive variable rate loan with a 100% offset account and low fees.
HSBC Home Value Loan - Promotional Offer LVR 90% (Owner Occupier, P&I)
2.80%
2.81%
$0
$0 p.a.
90%
A competitive value home loan with no ongoing fee.
ME Flexible Home Loan Fixed with Members Package - 3 Year Fixed Rate LVR <= 80% (Owner Occupier, P&I)
2.59%
3.39%
$0
$395 p.a.
80%
Get a low 3 year fixed rate with a 100% offset account and package discounts.
BankSA Basic Home Loan - Promotional Rate (Owner Occupier, P&I)
2.64%
2.66%
$500 (waived for loans above $150,000)
$0 p.a.
80%
Refinancers borrowing $200,000 or more can get a $2,000 cashback per property (Other terms, conditions and exclusions apply). Buyers and refinancers can get this competitive variable interest rate. A low variable interest rate for home buyers and refinancers. Application fee waived for loans above $150,000.
Well Home Loans Balanced Variable - LVR 80% (Owner occupier, P&I)
2.47%
2.50%
$250
$0 p.a.
80%
A very low interest rate for home buyers with 20% deposits saved. Add an offset account for a small fee. Not available for construction purposes.
Hume Bank Fixed Home Loan - 2 Year <70% LVR (Owner Occupier, P&I)
2.29%
4.06%
$600
$0 p.a.
70%
A competitive fixed rate loan for home buyers with a 30% deposit saved.
IMB Budget Home Loan - Special LVR <=90% (Owner Occupier, P&I, NSW and ACT borrowers only)
2.78%
2.84%
$449
$0 p.a.
90%
NSW and ACT customers only. You can get an interest rate discount for a limited time with this competitive variable mortgage.
ME Flexible Home Loan Fixed - 2 Year Fixed Rate LVR <= 80% (Owner Occupier, P&I)
2.64%
4.03%
$0
$0 p.a.
80%
Get a low fixed rate and pay no application or ongoing fees.
UBank UHomeLoan - 1 Year Fixed Rate (Owner Occupier, P&I)
2.14%
2.69%
$395
$0 p.a.
80%
Fix your mortgage for 1 year with a very competitive rate and no ongoing fees.
Suncorp Home Package Plus Fixed - 2 Year Fixed Rate Special Offer $150k+ LVR ≤90% (Owner Occupier, P&I)
2.29%
3.32%
$0
$375 p.a.
90%
Eligible refinancers can receive a cashback of $2,000 or more.
UBank UHomeLoan - 3 Year Fixed Rate (Owner Occupier, P&I)
2.14%
2.59%
$395
$0 p.a.
80%
A competitive fixed interest rate loan with no ongoing fees. Requires a 20% deposit.
IMB Fixed Rate Home Loan - 2 Year Fixed (LVR 90% Owner Occupier, P&I, NSW and ACT borrowers only)
2.39%
3.14%
$449
$6 monthly ($72 p.a.)
90%
NSW and ACT customers only. 2 years fixed interest terms and free access to redraw facility online. Available with a 5% deposit.
UBank UHomeLoan - 1 Year Fixed Rate (Investor, P&I)
2.29%
2.93%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
IMB Fixed Rate Home Loan - 3 Year Fixed (LVR 90% Owner Occupier, P&I, NSW and ACT borrowers only)
2.39%
3.08%
$449
$6 monthly ($72 p.a.)
90%
NSW and ACT customers only. 3 years fixed interest terms and free access to redraw facility online. Available with a 10% deposit.
ME Flexible Home Loan With Member Package - LVR <=80% $400k up to $699,999 (Owner Occupier, P&I)
2.84%
3.29%
$0
$395 p.a.
80%
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.
IMB Fixed Rate Home Loan - 3 Years Fixed (LVR ≤90% Investor, P&I, NSW and ACT borrowers only)
2.74%
3.59%
$449
$6 monthly ($72 p.a.)
90%
NSW and ACT customers only. A 3 years fixed rate investor which allows extra repayments to be made.
ME Basic Home Loan - LVR <=80% (Owner Occupier, P&I)
3.17%
3.19%
$0
$0 p.a.
80%
This variable rate loan keeps the features simple and fees low. This loan is offered by a 100% online lender.
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Important Information*
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 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 ME Flexible Home Loan Fixed with Members Package - 2 Year Fixed Rate LVR <= 80% (Owner Occupier, P&I)
ME Flexible Home Loan Fixed with Members Package - 2 Year Fixed Rate LVR <= 80% (Owner Occupier, P&I)

Lock in a competitive rate for owner occupiers for two years. Comes with a 100% offset account.

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. Eligible refinancers can receive a cashback of $2,000 or more.

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