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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

Rates last updated August 22nd, 2018
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Loan purpose
Offset account
Loan 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
loans.com.au Essentials - Variable (Owner Occupier, P&I)
3.64%
3.66%
$0
$0 p.a.
80%
Competitive interest rate and limited fees
A simple mortgage with a competitive interest rate and no application or monthly fees. Borrow up to $2 million from a convenient online lender.
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000
3.59%
3.59%
$0
$0 p.a.
80%
Special discounted interest rate
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
Tic:Toc Live in Loan Variable Rate - Principal & Interest
3.64%
3.65%
$0
$0 p.a.
80%
Get approved faster with a speedy online application
Low interest rate and limited fees. Add a 100% offset account for $10 a month.
ClickLoans The Online Home Loan - LVR <70% with Offset
3.70%
3.90%
$0
$0 p.a.
70%
Requires a 30% deposit
Enjoy all the benefits of the Basic Home Loan and take advantage of an offset account.
ME Flexible Home Loan With Member Package - LVR <=80% $400k up to $699,999 (Owner Occupier, P&I)
3.69%
4.11%
$0
$395 p.a.
80%
Save on interest with a 100% offset account
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.
Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤90% ($150K+ Owner Occupier)
3.49%
4.57%
$0
$395 p.a.
90%
Save on interest with a 100% offset account
Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
Macquarie Bank Basic Home Loan - LVR up to 70% (Owner Occupier, P&I)
3.75%
3.75%
$0
$0 p.a.
70%
This sharp rate product requires a 30% deposit
Pay no application or ongoing fees and get a flexible loan with the ability to split up to 6 times.
ClickLoans The Online Home Loan - LVR <80%
3.84%
3.84%
$0
$0 p.a.
80%
Low fee online mortgage
Pay no application or ongoing fees and get access to a free redraw facility with this innovative online lender.
Mortgage Choice Plus Home Loan - OO LVR <=70% ($150k+) P&I Only
3.71%
3.71%
$0
$0 p.a.
70%
A variable rate home loan that has a lot of flexible features. This loan has a 100% offset account.
Mortgage House Affordable First Home Buyer Special (Owner Occupier, P&I)
3.64%
3.68%
$0
$0 p.a.
80%
A competitive interest rate for first home buyers that keeps fees low. You will need a 20% deposit and can borrow up to 500000.
Virgin Reward Me Variable Home Loan - LVR <= 80% ($500k to $750k Owner Occupier, P&I)
3.68%
3.82%
$0
$10 monthly ($120 p.a.)
80%
Earn Velocity Frequent Flyer Points with this mortgage to spend on flights and more (subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150k+ Owner Occupier, P&I) Discount 1
3.72%
4.10%
$0
$395 p.a.
80%
100% offset account plus package discounts
New borrowers or refinancers can get a discounted rate with this package loan. Bonus $1,500 cashback for refinancers.
Mortgage House Advantage Variable Home Loan COMBO - Owner Occupier 70 (Special)
3.64%
3.79%
$0
$10 monthly ($120 p.a.)
70%
100% offset account and a competitive rate
Low rate, low fee loan for owner-occupiers. You will need a 30% deposit to get this mortgage.
Homestar Finance Variable Rate Home Loan - Owner Occupier ($900 cashback)
3.54%
3.59%
$0
$0 p.a.
80%
$900 cashback offer on settlement
Get a competitive rate, save on fees and access a 100% offset account plus redraw facility.
CUA Balanced Variable Home Loan - New Lending only (Owner Occupier, P&I)
3.65%
3.66%
$0
$0 p.a.
90%
Competitive interest rate and low fees. Available with a 10% deposit. Partial offset account attached (offset up to $15,000).
Bankwest Complete Home Loan Package Variable - LVR <=90% (Owner Occupier, P&I)
3.70%
4.13%
$0
$395 p.a.
90%
Get this loan with a 10% deposit
Package your loan with an eligible credit card for discounts on rates and fees, and get a 100% offset account.
Virgin Reward Me Variable Home Loan - LVR <= 80% ($750k+ Owner Occupier, P&I)
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
Earn thousands of Velocity Frequent Flyer Points on your mortgage (subject to eligibility requirements). Plus, access a 100% offset account to save on interest.
Yellow Brick Road Rate Smasher Home Loan
3.64%
3.64%
$0
$0 p.a.
70%
A low interest rate home loan with no application or ongoing fees.
Bank Australia Basic Home Loan - Special LVR <80% (Owner Occupier)
3.65%
3.66%
$0
$0 p.a.
80%
Sharp interest rate and low fees
This special rate mortgage has no ongoing fees and offers flexible repayments. Save $595 in establishment fees before 30 September.
Community First Accelerator Home Loan Package - >$250k New Money Offer (Owner Occupier, P&I)
3.59%
3.99%
$600
$395 p.a.
95%
Get interest rate discounts and waived fees on this package loan with a 100% offset account.
Bankwest Complete Home Loan Package Fixed - 2 Year Fixed Rate LVR <90% (Owner Occupier, P&I & $200k+)
3.88%
4.40%
$0
$395 p.a.
90%
Lock in a very competitive 2 year rate and get package discounts on your credit card and offset account.
Macquarie Bank Basic Home Loan - LVR ≤ 80% (Up to $750,000 Owner Occupier, P&I)
3.85%
3.85%
$0
$0 p.a.
80%
Flexible, low fee mortgage
Pay no application and ongoing fees with Macquarie Bank Basic Home Loan. Split and redraw facilities included.
Mortgage Choice Basic Variable Rate - OO LVR <= 70% ($150k +) P&I Only
3.64%
3.64%
$0
$0 p.a.
70%
A basic variable home loan that offers a competitive interest rate with no application fees and no ongoing fees.
Tic:Toc Live in Fixed Rate Home Loan - 1 Year (Owner Occupier, P&I)
3.64%
3.79%
$0
$0 p.a.
80%
Apply online for this fixed rate, low-fee loan with redraw facilities and an optional offset account.
Bankwest Complete Home Loan Package Fixed - 3 Year Fixed Rate LVR <90% (Owner Occupier, P&I & $200k+)
3.98%
4.41%
$0
$395 p.a.
90%
Take advantage of a low 3 year fixed rate, 40% offset account and no application fee.
loans.com.au Offset Variable - Up to 80% LVR (Owner Occupier P&I)
3.72%
3.74%
$0
$0 p.a.
80%
100% offset account and a 10% deposit option
Save on interest by taking advantage of a 100% offset account along with no ongoing fees or application fees.
Tic:Toc Live in Loan Fixed Rate - 3 Years (Owner Occupier, P&I)
3.84%
3.82%
$0
$0 p.a.
80%
A fixed rate loan with free redraws, few ongoing fees. Apply online with a fast approval process.
loans.com.au Package Special - 2 Year Fixed (Owner Occupier, IO)
3.89%
3.94%
$0
$0 p.a.
80%
Sharp fixed rate loan
Pay no application or ongoing fee and borrow up to 80% LVR.
Mortgage Choice Basic Variable Rate - OO LVR <= 80% ($150k +) P&I Only
3.74%
3.74%
$0
$0 p.a.
80%
A basic owner-occupier home loan with a low variable rate that requires a 20% deposit.
Newcastle Permanent Building Society  Premium Plus Package Fixed Rate - 1 Year Fixed (Owner Occupier, P&I)
3.59%
4.74%
$0
$395 p.a.
90%
Get this package loan with a 10% deposit
Enjoy a competitive rate with no application fee for this package loan.
Beyond Bank Low Rate Special Home Loan - LVR ≤ 80% (Owner Occupier)
3.79%
3.79%
$0
$0 p.a.
80%
Minimal fees and a 100% offset account
Access an offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
State Custodians Low Rate Home Loan with Offset - LVR 80% to 90% (Owner Occupier, P&I)
3.88%
3.89%
$0
$0 p.a.
90%
Low deposit, low rate mortgage
Save on interest with a free 100% offset account and buy your property with just a 10% deposit.
Greater Bank Great Rate Discount Variable with Family Pledge Home Loan - Up to 110% LVR
3.74%
3.74%
$0
$0 p.a.
110%
Borrow up to 110% with a guarantor
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.
Auswide Bank Variable Home Loan Plus with Freedom Package - $100K+ LVR <= 90% (Special Offer, Owner Occupier)
3.76%
4.15%
$0
$395 p.a.
90%
Discount special offer with a 100% offset account
A high maximum LVR home loan with redraw facility and additional payments. Get this mortgage with a 10% deposit.
Heritage Bank Discount Variable Home Loan - LVR <=80% (Owner Occupier) New Customers Only
3.67%
3.69%
$0
$0 p.a.
80%
Low interest rate for new customers
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
Mortgage Choice Plus Home Loan - OO LVR <=80% ($150k+) P&I Only
3.81%
3.81%
$0
$0 p.a.
80%
A home loan with a competitive rate and plenty of handy features. This product comes with a 100% offset account.
Bank First First Rate Home Loan - LVR < 80%
3.64%
3.69%
$600
$0 p.a.
80%
Low fees and low interest rate
A competitive variable rate for borrowers with a 20% deposit or more. Guarantor option available.
AMP Essential Home Loan  -  $100,000 and above (Owner Occupier)
4.04%
4.07%
$0
$0 p.a.
90%
Get this loan with a 10% deposit
For a limited time, pay no application or settlement fees. You can also take advantage of a free redraw facility.
loans.com.au Offset Variable - Package Offset (Investment, P&I)
3.97%
3.99%
$0
$0 p.a.
80%
Competitive investment package loan
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
AMP Professional Package Variable Rate Home Loan - $750,000 and above (Owner Occupier, P&I)
3.72%
4.11%
$0
$349 p.a.
90%
10% deposit option available
Package your loan with other AMP products and save on rates and fees.
Macquarie Bank Offset Home Loan  - LVR ≤ 70% (Owner Occupier, P&I)
3.75%
4.00%
$0
$248 p.a.
70%
100% offset account included
Borrowers with a 30% deposit can get this competitive rate.
QBANK Fixed Home Loan - 1 Years Fixed Discounted LVR 90% (Owner Occupier Special Offer)
3.62%
4.49%
$0
$0 p.a.
90%
Get a competitive rate and avoid ongoing fees. This loan is only available to current and former employees of eligible Queensland government organisations.
ME Basic Home Loan - LVR <=80% (Owner Occupier, P&I)
4.09%
4.11%
$0
$0 p.a.
80%
Simple residential mortgage product
This variable rate loan keeps the features simple and fees low. This loan is offered by a 100% online lender.
loans.com.au - 2 Year Fixed (Owner Occupier, P&I)
3.89%
3.94%
$0
$0 p.a.
90%
Available with a 10% deposit
Borrow up to 90% of the value of the property you're buying, and pay no application fee.
Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR<=90% Incl. LMI (Owner Occupier, P&I)
3.68%
3.69%
$0
$0 p.a.
90%
Available with a 10% deposit
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.
State Custodians Low Rate LOC - LVR up to 80% (Owner Occupier, IO)
3.93%
3.94%
$0
$0 p.a.
80%
Use your home equity with a low rate
A low-fee line of credit loan from an online lender. Unlock the equity in your home and make interest-only repayments with a competitive rate.
Macquarie Bank Basic Home Loan - LVR up to 70% (Investor, P&I)
3.99%
3.99%
$0
$0 p.a.
70%
Save on fees with this investor mortgage
Investors with a 30% deposit can get this low rate loan to fund their property portfolio.
State Custodians Low Rate Home Loan with Offset - LVR 80% to 90% (Investor, P&I)
4.13%
4.14%
$0
$0 p.a.
90%
Available with a 10% deposit
Access a fee-free offset account and a special interest rate for investors.
Greater Bank Great Rate Home Loan - Discounted Variable ($150K+ Owner Occupier) New Loans only
3.83%
3.83%
$0
$0 p.a.
90%
Special discount rate
New customers can get a discounted variable rate and a fee-free redraw facility. NSW, QLD and ACT residents only.
Mortgage House Advantage Variable Home Loan - LVR 95 Special (Owner Occupier, P&I)
4.24%
4.27%
$0
$0 p.a.
95%
Low deposit loan for investors
Buy a home with just a 5% deposit and get flexible repayment options and a redraw facility.
UBank UHomeLoan - 1 Year Fixed Rate (Owner Occupier, P&I)
3.59%
4.14%
$395
$0 p.a.
80%
Competitive interest rate
A one year fixed rate offer with no ongoing bank fees.
Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Years Fixed (Owner Occupier, P&I)
3.89%
4.94%
$595
$0 p.a.
90%
10% deposit option available
Borrow up to 90% of the value of the property you're buying and pay no application or ongoing fees.
UBank UHomeLoan - 3 Year Fixed Rate (Owner Occupier, P&I)
3.74%
4.01%
$395
$0 p.a.
80%
Lock in a low rate for 3 years
A competitive fixed interest rate product with no ongoing bank fees.
ClickLoans The Online Investor Home Loan - LVR <80%
4.18%
4.18%
$0
$0 p.a.
80%
Competitive investment mortgage
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
ME Flexible Home Loan Fixed - 2 Year Fixed Rate (Owner Occupier, P&I)
3.99%
4.86%
$0
$0 p.a.
80%
Fix your rate for 2 years
Access a fee-free 100% offset account and pay no application or ongoing fees.
UBank UHomeLoan - 1 Year Fixed Rate (Investor, P&I)
3.99%
4.62%
$395
$0 p.a.
80%
Flexible fixed investment loan
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
ClickLoans The Online Home Loan - LVR <70%
3.70%
3.70%
$0
$0 p.a.
70%
You need a 30% deposit to get this mortgage
Get a discount for keeping your LVR at 70% or below with this innovative online lender.
UBank UHomeLoan Variable Rate -Discount Offer for Investor Variable P&I Rate
3.99%
3.99%
$0
$0 p.a.
80%
Special discounted interest rate
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
Greater Bank Ultimate Home Loan - Discounted 2 Year Fixed LVR ≤90% ($150K+ Owner Occupier)
3.69%
4.54%
$0
$395 p.a.
90%
10% deposit option available
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150k receive a discounted rate. NSW, QLD and ACT residents only.
Yellow Brick Road Empower Home Loan - 3 Years Fixed LVR up to 95% (Owner Occupier P&I)
4.29%
4.26%
$0
$0 p.a.
95%
A competitive 3-year fixed rate loan with a high max insured LVR.

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Important Information*
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 3.59% p.a. and a 3.59% p.a. comparison rate.

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

A competitive interest rate home loan with interest only options. Interest rate 3.64% p.a.
comp rate of 3.66% p.a.

Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤90% ($150K+ Owner Occupier)

Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.

Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150k+ Owner Occupier, P&I) Discount 1

New borrowers or refinancers can get a discounted rate with this package loan. Bonus $1,500 cashback for refinancers.

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