The comparison rate and what it cannot tell you

The example loan behind every comparison rate

A comparison rate is a single figure that folds a loan’s interest rate together with the fees that can be worked out in advance, expressed as an annual percentage. Australian lenders must display it beside any advertised home loan rate, and for home loans it is calculated on a prescribed example: a loan of $150,000 over a term of 25 years.

That example is the whole reason the number can mislead. It is not your loan amount and, for most buyers now, not your term either. Every fee in the calculation is being weighed against a $150,000 balance amortising over 25 years, so the further your loan sits from that example, the further the comparison rate sits from what the loan will actually cost you.

What your loan size does to the fee component

Take a package with a $395 annual fee. Against the prescribed $150,000 example that fee is worth roughly 0.4 of a percentage point, because it is being charged against an average outstanding balance somewhere near $90,000 across the term. Against an $800,000 loan over 30 years, where the average balance is closer to $530,000, the same $395 is worth under 0.1 of a percentage point.

The direction matters. If you are borrowing well above $150,000, a fee-loaded product looks worse on comparison rate than it will be for you — and the things that fee buys, such as a waived valuation or a fee-free offset, are not in the number at all. If you are borrowing well below $150,000, the effect runs the other way and flat dollar fees hurt more than the disclosed figure suggests.

None of that makes the comparison rate useless. It makes it a number that needs your loan amount before it means anything, which is exactly what the mandated warning beside it says: the rate is true only for the example given.

What it captures well

Two things, and both are genuinely useful. It exposes fee-loaded products, because a lender advertising a sharp headline rate with a large annual fee and an application fee cannot hide either from the calculation. And it blends introductory pricing: a honeymoon rate followed by a revert rate is calculated across the whole example term, so the discount is diluted to roughly its real weight rather than being advertised on its own.

That second point is worth holding onto when a two-year discount is being marketed at you. On a 25-year calculation, two cheap years move the figure very little — so if the headline rate and the comparison rate are far apart on an introductory product, the revert rate is where most of your money is going.

What it cannot see

Government charges are excluded, as is any fee that depends on something which may not happen — early repayment costs, a discharge fee you may never trigger, late fees. The prescribed example is also a loan size and term that says nothing about your loan-to-value ratio, so if you are borrowing above 80 per cent of the property value, none of your lenders mortgage insurance premium is reflected in the number.

Nor can it model behaviour. Offset balances change the interest you actually pay day by day and never appear in the calculation, so a product whose value depends on you holding $60,000 in offset discloses identically to one where you hold nothing. Cashback offers sit outside it too, along with the clawback conditions attached to them. Split structures and interest-only periods change the amortisation path the calculation assumes.

The term reset no rate comparison shows

The largest avoidable cost in most refinances is neither the rate nor the fees. It is the term. Moving a loan with 22 years left onto a fresh 30-year term lowers the monthly repayment, which is the part that gets sold, and adds eight years of interest, which does not. Two products can disclose identical comparison rates and still produce a five-figure difference in lifetime interest purely because of the term written on the new contract.

Ask for the replacement loan to be written to your remaining term rather than the default 30 years. If the repayment then does not work, that is useful information about whether the refinance helps you at all.

A ten-minute comparison that beats the banner

Work out the total you will pay under each product over the period you actually expect to hold the loan, not over 25 or 30 years. Add the upfront costs — application, valuation, settlement, discharge on the outgoing loan, any break cost — then the repayments at the real rate for your balance and term, then the annual fees for those years. Subtract any cashback, and note the window in which it can be clawed back.

Then run it a second time with the rate three percentage points higher, which is what the lender is doing anyway when it assesses you. If the comparison only works at the offered rate, what you are looking at is not a saving but a position on the rate cycle.

Getting a number that matches your file

The comparison rate is a disclosure tool built to make two advertised products comparable, and at that job it works. It was never built to tell one borrower what one loan will cost them. Where a real decision turns on the gap between two products, the arithmetic worth doing uses your balance, your term, the fees you will actually be charged and how long you intend to keep the loan.

The fee illustrations above are worked examples using the prescribed comparison-rate assumptions as at September 2026, not quotes for any product. Rates, fees and comparison rates come from each lender’s own disclosure documents and can change between enquiry and settlement.