If you’ve been scanning home loan offers, you’ve almost certainly noticed two percentage figures side by side: one labelled “interest rate” or “advertised rate,” and another labelled “comparison rate.” They’re rarely the same number. So which one tells you what the loan will actually cost?
Put simply, the advertised rate is the annual interest cost on the money you borrow, before fees are added. The comparison rate is a single percentage that bundles that interest rate together with most of the upfront and ongoing fees the loan carries. That means the comparison rate is usually higher — and it’s the figure designed to make it easier to compare total cost across different loans.
At CashRate we track and explain how rates are set and what they mean for borrowers. But we’re not a lender or broker, and we don’t give personal financial advice — so while we can show you how the comparison rate tool works, your final decision should always consider your own situation and whether a particular loan product suits your needs.
Why two rates exist
The comparison rate became a mandatory disclosure in Australia because lenders can advertise a low headline interest rate while loading the loan with fees that make it more expensive than a loan with a slightly higher rate but no ongoing charges. The comparison rate is meant to give you a single-cost snapshot — calculated on a standard scenario: a $150,000 loan over 25 years, making principal-and-interest repayments. Your actual loan might be a different size or term, so the comparison rate won’t be a perfect match for your personal borrowing, but it still does the heavy lifting when you’re shortlisting loans.
What the advertisement rate captures
- The annual interest percentage charged on your outstanding balance
- Nothing else — no application fees, service fees, or settlement costs
What the comparison rate captures
- The annual interest rate
- Application fee (also called establishment, up-front or set-up fee)
- Ongoing administration or service fees
- Most other unavoidable charges that form part of the cost of the loan
Government fee exceptions, break costs for fixed loans, and discretionary extras — like a redraw fee you might never trigger — are generally excluded from the comparison rate calculation. So while the comparison rate is a much truer cost signal than the headline rate, it still isn’t a personalised total.
How to use the comparison rate when you’re shopping
The simplest approach is to filter by comparison rate first, not the advertised rate. If Loan A advertises 5.50% with a comparison rate of 5.95% and Loan B advertises 5.60% with a comparison rate of 6.30%, Loan B is the more expensive package even though it looks similar on the surface. That gap usually means Loan B is carrying a bigger application fee or higher recurring charges.
Once you’ve narrowed your list, check the fees that actually apply to your scenario. An upfront establishment fee of $600 might be offset by a lower ongoing annual fee across a 30-year term — so a lower comparison rate doesn’t automatically guarantee the cheapest option for your specific loan amount and timeline.
Quick checklist
- Start with the comparison rate. It’s the equaliser that puts fees into the picture.
- Look at the fee schedule. Separate one-off fees from ongoing annual or monthly charges; the comparison rate smooths these out, but you need to know which ones will hit your pocket.
- Match loan features you’ll use. Offset accounts, redraw facilities, and the ability to make extra repayments all have value, but they sometimes come with higher fees that push up the comparison rate. If you won’t use them, you’re paying for nothing.
- Play with a mortgage calculator. Check how a 0.5% difference in the real rate you pay changes total interest over the term — small variations really add up.
Where rates come from
The cash rate set by the Reserve Bank of Australia acts as the baseline for overnight money-market lending and influences the rates lenders offer. When the cash rate moves, advertised rates and (eventually) comparison rates tend to follow, though lenders adjust at different speeds and by different margins. That’s another reason the comparison rate is more instructive than the headline figure alone: it reflects the full pricing strategy a lender has chosen for that product, not just the base-rate component.
Remember the limits
Comparison rates are a regulatory tool, not a personal quote. They’re calculated on a fixed loan amount and term that probably doesn’t match yours, and they can’t factor in your loan-to-value ratio, credit history, or whether you qualify for a rate discount. Always ask for a written quote based on your actual borrowing scenario before you commit.
CashRate exists to make rate data and the concepts behind it easier to understand. We aren’t a credit provider, we don’t promise you a particular rate or approval, and we don’t offer financial advice. Use the comparison rate as your starting filter, then talk to a licenced professional who can look at your personal finances.
For more on choosing a home loan and understanding fees, visit the Australian Government’s MoneySmart website — it’s free, independent, and built for borrowers.