Home News What is a comparison rate?

What is a comparison rate?

Font size :

Three Trend Lines showing a visual representation of a comparison rate

You may not know this, but all lenders are legally required to display a comparison rate when advertising any loan. But what is it, and – more importantly – how can it help you get a better deal on your home loan?

A comparison rate is a figure derived from the amount of the loan, the length of the loan, the repayment frequency, the interest rate, and the fees and charges connected with the loan.

As such, it’s purpose is to help consumers identify the true cost of a loan, says finance broker Katie Toole.

"It is a rate that includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure," she explains. But they are often misunderstood amongst borrowers in the mortgage marketplace.

For example, you may see a loan advertised as: Variable interest rate 4.25%, comparison rate 4.78% - based on loan of $150,000 over 25 years. While this does reflect the true cost of this example loan, it would be a completely different figure for a loan size of $400,000, or for a loan term of 30 years.

"Most people just use the loan interest rate to compare different loans," Toole says. "Although this is a good start, it doesn’t take into account other costs such as establishment fees, approval fees, any upfront or ongoing fees that comprise the overall cost of a loan."

According to Toole, a comparison rate is a useful tool for borrowers to compare the cost of different loans, but she clarifies that it is important to consider all of a loan’s features.

"The loan amounts and terms shown on a comparison rate schedule don’t represent all of the possible combinations of amounts and terms," she says.

"This means the amount and term of your particular loan may not be included in the comparison rate schedule."

In order to get an idea of the comparison rate that applies to your loan, Toole suggests you look for the one that is closest to the amount and term of your loan.

Alternatively you might want to speak to a local mortgage broker - they'll help explain exactly what a comparison rate is, and how it will affect your loan repayments.

This story was updated for clarity and content in June 2018

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan

Mortgage News and Articles

Moody's: Housing market to remain chilly for the rest of the year Moody's: Housing market to remain chilly for the rest of the year

Australia will likely erase the housing price growth it recorded last year Read more

Darwin housing market likely to see recovery next year Darwin housing market likely to see recovery next year The city has been on a price downtrend since 2015 due to the end of the mining boom ... Read more

No dramatic correction expected for Melbourne No dramatic correction expected for Melbourne Experts say ANZ's prediction of a $1,000 price decline per week is "way over the top" ... Read more

Some Interest-only borrowers have no choice but to sell Some Interest-only borrowers have no choice but to sell They face higher repayments as loans roll into the principal plus interest ... Read more

More mortgage news and articles

Sponsored Links

Friday, Jun 22, 2018
Top Featured Rates
Top Bank Rates

Get help choosing the right home loan

Let us help you find the right home loan for your needs.

Tell us a bit about your circumstances:
  • Purpose of mortgage
  • Household Income
    $
  • How much do you want to borrow?
    $
  • How much deposit do you have?
    $
  • How much is your house worth?
    $
  • How much do you still owe on your mortgage?
    $
  • What type of mortgage do you have?


  • How much is your new home?
    $
  • How much do you want to borrow?
    $
  • How soon do you want a mortgage?
Next
  • First name
  • Last name
  • Where do you live?
  • Phone number

Special Offers

Related Keywords