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Comparison rate explained.
William Sun · May 2026
The comparison rate appears next to every advertised home loan rate in Australia. It's a legal requirement. The intent was good: give borrowers a single number that accounts for both the interest rate and the most common fees, so that a loan with a low rate and high fees can't be made to look better than it is by advertising the rate alone.
In practice, the comparison rate is useful for a narrow purpose and unreliable outside that purpose. Understanding what it includes — and what it deliberately doesn't — is the difference between using it as a tool and being misled by it.
How the comparison rate is calculated
The comparison rate is calculated using a standardised loan of $150,000 over 25 years. It takes the advertised interest rate, adds the upfront and ongoing fees that the lender must include by law — establishment fees, monthly account-keeping fees — and expresses the combined cost as an annual percentage rate.
The output is a single number slightly higher than the headline rate. A loan advertised at 6.14% p.a. might carry a comparison rate of 6.21% p.a. The gap reflects the fees absorbed into the calculation.
The mandatory disclosure warning that accompanies every comparison rate — and which must appear on any page that shows a rate — states this clearly: the comparison rate is true only for the example given. Different terms, fees, or loan amounts will produce a different comparison rate.
What the comparison rate doesn't include
The list of exclusions is significant. Discharge fees — what you pay to close the loan — are not included. Early repayment fees on fixed loans are not included. Offset account fees are not included. Redraw fees are not included. Government charges such as mortgage registration are not included. Any fee described as "conditional" is not included.
This means two loans with identical comparison rates can have substantially different total costs over their life. A loan with no offset account and a lower comparison rate may cost more in real terms than a loan with a full offset, a slightly higher comparison rate, and $200,000 sitting against it reducing the interest calculation daily.
The comparison rate also can't capture lender policy differences: how they assess self-employed income, how quickly they process applications, how responsive their broker support team is, or how often they run retention pricing offers. These factors are invisible to the number but material to the borrowing experience.
When the comparison rate is useful
The comparison rate is most useful as a first filter. If two loans look similar on rate but one has a comparison rate meaningfully higher than the other, the higher figure signals fees worth investigating. It's a prompt to look more closely, not a final answer.
It's also useful for identifying loans that carry large upfront fees dressed up as low rates. A headline rate of 5.80% with a comparison rate of 6.40% is flagging that the gap — 0.60% — represents a significant fee load. On a $150,000 loan over 25 years that's already been absorbed; on a $750,000 loan over 30 years the actual fee impact is materially larger than the comparison rate arithmetic suggests.
The number that actually matters
The number that matters for your loan is the net cost of the loan over your specific term, at your specific loan amount, accounting for how you'll actually use the product — including any offset balance, any additional repayments, the likelihood of fixing or refinancing mid-term, and the exit costs when the loan eventually closes.
That number doesn't appear in any advertisement. It's calculated specifically for your situation. The comparison rate is a regulatory tool designed for general disclosure, not a personalised cost analysis. Treating it as the latter is where borrowers get into trouble — picking the loan with the lowest comparison rate and discovering later that the offset structure they actually needed wasn't available on that product.
Use the comparison rate to screen out loans with obvious fee problems. Don't use it to choose between loans that have passed that screen. For that comparison, you need the actual product terms, your actual loan amount, and a model of how you plan to use the loan — which is the analysis a Strategy Memo provides before any recommendation is made.
About the author
William Sun
Principal Mortgage Broker · Brilliant Finance Solutions · Est. 2017
William Sun is the principal of Brilliant Finance Solutions, a Sydney mortgage practice established in 2017. He holds Credit Representative Number 498730, authorised under BLSSA Pty Ltd Australian Credit Licence 391237, and is a member of the Finance Brokers Association of Australasia (FBAA M-333308). Every client engagement begins with a written Strategy Memo — a structured assessment of loan options before any lender is approached.
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