What Is a Comparison Rate and Why It Matters More Than the Headline Rate
18 May 2026
What the Comparison Rate Actually Includes
The comparison rate is a standardised figure that combines the interest rate with most of the fees associated with a loan, expressed as a single annual percentage. It was introduced by the Australian government to make it easier to compare loan products across different lenders without having to manually add up fees. Lenders are legally required to display it alongside any advertised interest rate.
The fees folded into the comparison rate include application or establishment fees, ongoing monthly or annual fees, and any fees charged to close the loan. What it does not include are fees that apply only in certain circumstances — like redraw fees, early repayment charges on fixed-rate loans, or fees triggered by specific borrower behaviour.
Why the Gap Between the Two Rates Matters
When the comparison rate sits well above the headline rate, it signals that the loan carries significant ongoing fees. A loan with a 5.89% headline rate and a 6.21% comparison rate has a 32-basis-point gap — meaning fees are adding meaningful cost across the loan term. A product where both figures are nearly identical carries minimal fees beyond interest.
Lender B: 6.05% headline rate / 6.08% comparison rate — no ongoing fees, $250 establishment fee.
Over a 30-year $600,000 loan, Lender B may cost less in total despite the higher headline rate. The comparison rate surfaces this before you sign.
The Standardised Loan Size Is the Key Limitation
Every lender calculates the comparison rate using the same standardised loan: $150,000 over 25 years. This is a fixed benchmark that hasn't changed since the regulation was introduced, and it creates a meaningful distortion for most borrowers today.
If you are borrowing $700,000, a $395 annual package fee represents a far smaller proportion of your total loan cost than it would on $150,000. The comparison rate will overstate the fee impact relative to your actual loan. Conversely, on a small loan where fees are significant relative to the balance, the comparison rate may understate real cost if your term differs from 25 years.
This doesn't make the comparison rate useless — it's still the most practical tool available for quick side-by-side comparisons. But it works best when you also run your own numbers based on your actual loan size, term, and the specific fees listed in the product disclosure statement.
How to Use the Comparison Rate Properly
The comparison rate is most useful as a filter, not a final answer. Use it to eliminate products with large hidden fee loads before doing deeper analysis on the shortlist. When two loans have identical comparison rates, look at what fees are excluded from the calculation — redraw fees, break costs, and discharge fees don't appear in the comparison rate but can add up on certain loan types.
Package loans — which bundle a home loan with an offset account, credit card, and fee waivers for an annual fee — often show a meaningful gap between headline and comparison rates because the annual package fee is included. Whether that fee is worth paying depends on whether you actually use and benefit from the features bundled with it. Paying $395 per year for an offset account that saves you $2,000 in interest annually is a net positive. Paying for features you never use is not.
Fixed-rate loans often display a comparison rate calculated on the fixed term only, or on the assumption the loan reverts to the standard variable rate after the fixed period. Read the fine print beneath the comparison rate to understand what term and rate assumptions the lender used.
What the Comparison Rate Won't Tell You
Two numbers the comparison rate never captures are serviceability flexibility and lender behaviour. Some lenders assess living expenses more generously, accept certain income types that others don't, or offer faster approval turnarounds — none of which appear in a rate comparison. The right loan for a particular borrower's circumstances may not be the cheapest on paper.
Offset account quality also falls outside the comparison rate. A 100% offset account linked to a variable loan can reduce the effective interest paid substantially for borrowers who keep significant savings parked there. A loan with a slightly higher rate but a well-structured offset may outperform a lower-rate product without one, depending on savings habits.
Key Takeaways
- The comparison rate combines the interest rate and most fees into one figure — lenders must display it by law next to any advertised rate.
- A large gap between the headline and comparison rate signals significant ongoing fees; a small gap means the loan is mostly interest with minimal fee load.
- The standardised $150,000 / 25-year benchmark distorts the comparison rate for borrowers with larger or smaller loans — always run your own numbers.
- Fees excluded from the comparison rate include redraw fees, break costs on fixed loans, and discharge fees — check the product disclosure statement.
- Use the comparison rate as a first filter to eliminate high-fee products, then assess the shortlist based on your actual loan size and the features you'll genuinely use.
