What is a home loan comparison rate?

If you’ve ever found yourself asking ‘what’s a comparison rate?’, then we’re here to explain this important piece of home loan terminology and how it works.

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If you’ve ever found yourself asking ‘what’s a comparison rate?’, then we’re here to explain this important piece of home loan terminology and how it works.

Key points:

The comparison rate of a home loan is an estimate of how much it could cost you each year.
A comparison rate takes into account the cost of interest as well as fees and charges.
Lenders are legally required to show customers the comparison rate of a loan alongside the interest rate.

What is a home loan comparison rate?

A home loan comparison rate is an estimate of how much a loan could cost you each year when interest, as well as most ongoing fees and charges, are added up. Lenders are legally required to show customers a comparison rate alongside a product’s interest rate. The comparison rate is expressed as an annual percentage rate.

What is the difference between the home loan interest rate and the home loan comparison rate?

The interest rate reflects how much interest you will be charged per year on the balance of your loan, whether your loan is at a fixed or variable rate. This will give you an idea of your monthly repayments.
The comparison rate combines the interest rate plus most fees and charges that come with the loan. This is designed to help you identify the cost of the loan more accurately and make it easier to compare products.

Compare Home Loans (First home buyer with a variable rate) with Canstar

If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $500,000 in NSW with an LVR of 80% of the property value and that offer an offset account. Consider the Target Market Determination (TMD) before making a purchase decision. Contact the product issuer directly for a copy of the TMD. Use Canstar’s home loans comparison selector to view a wider range of home loan products. Canstar may earn a fee for referrals.

AMP Bank | Professional Package | Owner Occupied | LVR 60-80% | Variable

More details

Fees & charges apply, Australian Credit Licence 234517

Teachers Mutual Bank | Your Way Plus Home Loan | Owner Occupied | LVR 60-80% | Variable

via a Canstar Certified Mortgage Broker

Fees & charges apply, Australian Credit Licence 238981

Pacific Mortgage Group | Owner Occupied | LVR ≤80% | Variable

Link Not Supplied

Fees & charges apply, Australian Credit Licence 364320

Link Not Supplied

Fees & charges apply, Australian Credit Licence 238311

The Capricornian | Offset | Owner Occupied | LVR ≤97% | Variable

Link Not Supplied

Fees & charges apply, Australian Credit Licence 246780

Canstar is an information provider and in giving you product information Canstar is not making any suggestion or recommendation about a particular product. If you decide to apply for a home loan, you will deal directly with a financial institution, not with Canstar. Rates and product information should be confirmed with the relevant financial institution. Home Loans in the table include only products that are available for somebody borrowing 80% of the total loan amount. For product information, read our detailed disclosure, important notes and additional information. *Read the comparison rate warning. The results do not include all providers and may not compare all the features available to you.

Home Loan products displayed above that are not “Sponsored or Promoted” are sorted as referenced in the introductory text followed by Star Rating, then lowest Comparison Rate, then alphabetically by company. Canstar may receive a fee for referral of leads from these products.

When you click on the button marked “Enquire” (or similar) Canstar will direct your enquiry to a third party mortgage broker. If you decide to find out more or apply for a home loan, you can provide your details to the broker. You will liaise directly with the broker and not with Canstar. When you click on a button marked “More details” (or similar), Canstar will direct your enquiry to the product provider. Canstar may earn a fee for referral of leads from the comparison table above. See How We Get Paid for further information.

How is a comparison rate calculated?

Home loan comparison rates are calculated based on a $150,000 loan, over a 25-year loan term. Comparison rates take into account a loan’s:

interest rate (including any revert rate that applies to the loan after a set period of time)
fees and charges (including upfront costs like establishment fees and valuation fees and ongoing costs such as monthly or annual fees)
repayment frequency

An example of how comparison rates are displayed can be seen in Canstar’s comparison tables.

The comparison rate should be used as a guide only, to compare ‘like for like’ products. This is because the average mortgage size in Australia is much higher than $150,000. As well as that, your home loan may be longer or shorter than 25 years.

The comparison rate also does not take into account all fees and charges related to a loan. For example, it does not include fees and charges that are incurred in specific circumstances, such as early repayment fees and redraw fees. It also does not consider potential cost saving options such as fee waivers and offset accounts.

Additionally, it does not include external government fees and charges that usually apply to purchasing a property, such as stamp duty.

Does the comparison rate make a big difference?

The comparison rate for a loan can reveal quite a difference in costs between two loans that have the same advertised interest rate. If you were just considering interest rates, you might think two loans cost the same. But the comparison rate can help to reveal whether one loan costs more than the other.

Choosing the best possible loan for your situation could mean thousands of dollars saved in fees over the years. Checking the comparison rate can help you to choose a loan with an overall annual cost you can afford. However, be aware that a more expensive loan may offer different features, such as an offset account, redraw facility or portability, which may contribute to its overall value.

Where do you find the comparison rate?

Lenders are legally required to display comparison rates whenever they advertise a home loan interest rate. For example, you may see a home loan advertisement with the text: Variable interest rate 3.29%, comparison rate 3.70%, based on a loan of $150,000 over 25 years. Lenders must also include a comparison rate warning about the accuracy of the comparison rate.

Another helpful place to look is the key facts sheet, where the lender should specify information including the comparison rate meaning, the interest rate and the total amount to be paid back over the life of the loan.

Canstar lists the comparison rate alongside the advertised interest rate for each loan in our comparison tables. We also enable consumers to sort home loan products by comparison rate. You can find comparison rates on home loans for various purposes:

Lenders must also display comparison rates for personal loan and car loan products (however, these rates are based on different loan amounts and loan terms). Canstar also displays comparison rates and interest rates for these products.

Unloan | Owner Occupied | LVR ≤80% | Variable

More details

PROMOTED

A simple low rate with an increasing discount.
Apply in minutes. No Unloan Fees.
Fee-free extra repayments and redraw.

Fees & charges apply, Australian Credit Licence 234945

via a Canstar Certified Mortgage Broker

PROMOTED

Low variable interest rate
Low fees
Flexible options

Fees & charges apply, Australian Credit Licence 229882

via a Canstar Certified Mortgage Broker

PROMOTED

Keep it simple with no ongoing fees
$0 ANZ set up or ongoing fees
Competitive interest rates

Fees & charges apply, Australian Credit Licence 234527

via a Canstar Certified Mortgage Broker

PROMOTED

$0 monthly and annual fees
Unlimited repayments and redraw
Fast approval

Fees & charges apply, Australian Credit Licence 233714

Canstar may earn a fee for referrals from its website tables, and from Sponsorship or Promotion of certain products. Fees payable by product providers for referrals and Sponsorship or Promotion may vary between providers, website position, and revenue model. Sponsorship or Promotion fees may be higher than referral fees. Sponsored or Promoted products are clearly disclosed as such on website pages. They may appear in a number of areas of the website such as in comparison tables, on hub pages and in articles. Sponsored or Promoted products may be displayed in a fixed position in a table, regardless of the product’s rating, price or other attributes. The table position of a Sponsored or Promoted product does not indicate any ranking or rating by Canstar. For more information please see How We Get Paid.

Compare Home Loans

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Thanks for visiting Canstar, Australia’s biggest financial comparison site*

This article was reviewed by our Content Lead, Canstar Mandy Beaumont before it was updated, as part of our fact-checking process.

Alasdair Duncan

Senior Finance Journalist

Alasdair Duncan is a Senior Finance Journalist at Canstar, specialising in home loans, property and lifestyle topics. He has written more than 200 articles for Canstar and his work is widely referenced by other publishers and media outlets, including Yahoo Finance, The New Daily, The Motley Fool and Sky News. He has featured as a guest author for property website homely.com.au.

In his more than 15 years working in the media, Alasdair has written for a broad range of publications. Before joining Canstar, he was a News Editor at Pedestrian.TV, part of Australia’s leading youth media group. His work has also appeared on ABC News, Junkee, Rolling Stone, Kotaku, the Sydney Star Observer and The Brag. He has a Bachelor of Laws (Honours) and a Bachelor of Arts with a major in Journalism from the University of Queensland.

When he is not writing about finance for Canstar, Alasdair can probably be found at the beach with his two dogs or listening to podcasts about pop music. You can follow Alasdair on LinkedIn and Twitter.

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