When you compare home loans in Australia, you'll notice that every advertised rate comes with a second, slightly higher figure alongside it. That second figure is the comparison rate. Understanding what it includes, what it misses, and when it's useful will help you evaluate home loans more accurately.

What Is a Comparison Rate?

A comparison rate is a single percentage that combines a loan's interest rate with most of its standard fees and charges. The goal is to give you a more complete picture of the loan's true cost, rather than just the headline interest rate.

Lenders in Australia are legally required to display a comparison rate alongside their advertised interest rates under the National Credit Code. The formula used to calculate it is standardised, which means comparison rates are designed to be consistent across all lenders.

What Does the Comparison Rate Include?

The comparison rate factors in the interest rate plus most standard fees, including establishment fees, monthly or annual loan fees, and discharge fees at the end of the loan. When a lender charges a lower interest rate but higher fees, the comparison rate will be noticeably higher than the headline rate, signalling that the loan is more expensive than it first appears.

What the Comparison Rate Doesn't Include

This is where it gets important. The comparison rate doesn't include everything, and what's excluded can matter quite a bit:

  • Offset account benefits. If a loan includes a full offset account, the interest savings from using it are not reflected in the comparison rate. Two loans with identical comparison rates could have very different real-world costs if one includes an offset and the other doesn't.
  • Conditional fees. Some fees only apply in specific circumstances, such as break costs on a fixed rate or redraw fees. These aren't included.
  • Government charges. Stamp duty, registration fees, and similar costs are excluded.
  • Introductory or honeymoon rates. If a loan has a reduced rate for an initial period, the comparison rate is calculated on the ongoing rate, not the introductory one.

The Other Limitation: It's Based on a $150,000 Loan

By law, the comparison rate in Australia is calculated on a loan of $150,000 over 25 years. The average Australian mortgage is now significantly higher than $150,000. This means fees that are fixed in dollar terms (like a $395 annual fee) have a much larger percentage impact on a $150,000 loan than on a $700,000 loan.

The practical effect: on larger loans, the comparison rate overstates how much fees actually cost relative to the loan size. The larger your loan, the less weight you should give the comparison rate as a precise cost measure, and the more you should focus on the actual dollar value of fees.

So Does the Comparison Rate Matter?

It's a useful starting point, not a final answer. A comparison rate that's significantly higher than the advertised interest rate is a signal worth investigating: it means fees are substantial, and you should find out what they are and whether they apply to you.

But two loans with similar comparison rates can still be very different products. A loan with an offset account, unlimited extra repayments, and low fees might have the same comparison rate as a basic, no-frills loan with no flexibility. Comparing comparison rates alone won't reveal that difference.

What to Look at Instead

Use the comparison rate as a first filter to spot high-fee products. Then go deeper: look at the actual fees listed, check whether an offset account is included, and assess whether the loan's features match how you intend to use it.

At Swish, we compare loans across a panel of lenders and look at the full picture: rate, fees, features, and how each loan suits your specific situation. A loan that looks competitive on a comparison rate chart may not be the best fit for your needs, and vice versa.

Book a free call with Swish and we'll help you understand what you're actually comparing when you're looking at home loans.