---
title: Comparison Rate Explained | What It Tells You | GNT Finance
description: The comparison rate rolls a loan's rate and most fees into one figure on a $150,000 loan. What it includes, what it misses and how to compare Melbourne loans.
url: https://gntfinance.com.au/guides/comparison-rate-explained/
section: guides
updated: 2026-09-01
author: Gorakh Timilsina, GNT Finance
---

# Comparison rate explained: what it is and how to use it

**In short:** A comparison rate is the advertised interest rate plus most upfront and ongoing fees, expressed as a single percentage on a standard $150,000 loan over 25 years. It is required by law in every Australian home loan advertisement so you can rank loans on true cost. It is a ranking tool, not your actual rate, because your loan is bigger and your fees differ.

You will see two percentages on every home loan advertisement: a headline rate in large type and a comparison rate in smaller type beside it. The gap between them is the fees. This guide explains how the figure is built, why it can mislead borrowers on a $650,000 Craigieburn loan, and how to use it alongside your own numbers to pick the cheapest loan rather than the cheapest-looking one.

## How the comparison rate is calculated

### The legal standard

Under the National Consumer Credit Protection Act, any advertisement that quotes an interest rate for a consumer loan must also show a comparison rate, calculated on a fixed formula. The lender takes the interest rate and adds in:

- Establishment or application fees
- Valuation and settlement fees charged by the lender
- Ongoing monthly or annual fees, including package fees
- Discharge fees payable at the end of the loan
- Any known rate change, such as the reversion to a standard variable rate after a fixed or introductory period

The formula then works out what single interest rate would produce the same total repayments over 25 years on a $150,000 loan. That percentage is the comparison rate.

### What is left out

The formula ignores anything that depends on how you use the loan or events the lender cannot predict:

- Government charges (stamp duty, mortgage registration)
- Fees for optional features such as redraw or a second offset account
- Break costs if you leave a fixed rate early
- Rate rises or cuts after the loan starts
- The benefit of an offset account
- Third-party costs like your conveyancer or a building inspection

So two loans can have identical comparison rates while one saves you $1,800 a year through an offset and the other charges you to redraw. The figure tells you about the loan's fee structure, not its features.

## Reading the gap between headline rate and comparison rate

| Situation | Headline rate | Comparison rate | What the gap says |
|---|---|---|---|
| Basic variable, no fees | 5.99% | 6.01% | Almost no fees, few features |
| Package loan with $395 annual fee | 5.89% | 6.24% | The annual fee costs more than 0.3% on a $150,000 loan |
| 2-year fixed with reversion rate | 5.59% | 6.72% | After 2 years the rate jumps to a high standard variable |
| Introductory (honeymoon) rate | 5.49% | 6.85% | Cheap for 12 months, then expensive for 24 years |

The bigger the gap, the more fees or the higher the reversion rate. A large gap is not automatically bad, but it means you need to read the fee schedule before you sign.

## Why the $150,000 assumption distorts things for Melbourne buyers

The standard loan size was set decades ago and bears no relation to a modern purchase in Melbourne's north. On a $150,000 loan, a $395 annual package fee adds roughly 0.26 percentage points to the comparison rate. On a $650,000 loan the same fee is roughly 0.06 percentage points. Fees loom far larger in the comparison rate than they do in real life for larger loans, which means:

- Fee-free basic loans look better on comparison rate than they may be for you
- Package loans with a fee but a sharper rate look worse than they may be for you
- The order of two loans on comparison rate can flip once you plug in your real loan amount

### Worked example: a $650,000 Craigieburn purchase

Two loans for a couple buying an established four-bedroom home in Craigieburn with a $585,000 loan over 30 years. For illustration only.

| | Loan A: basic variable | Loan B: package variable |
|---|---|---|
| Headline rate | 6.05% | 5.95% |
| Annual fee | $0 | $395 |
| Application fee | $600 | $0 |
| Comparison rate (on $150,000) | 6.09% | 6.29% |
| Monthly repayment on $585,000 | approx. $3,526 | approx. $3,488 |
| Interest paid in year one | approx. $35,200 | approx. $34,600 |
| Fees in year one | $600 | $395 |
| Total cost year one | approx. $35,800 | approx. $34,995 |
| Total cost over 5 years (fees plus interest, rates unchanged) | approx. $174,000 | approx. $171,000 |

Loan B has the higher comparison rate but costs about $800 less in the first year and roughly $3,000 less over five years, because at $585,000 the rate discount outweighs the fee. Loan B also comes with an offset account. If the couple keep $20,000 in offset they save a further $1,190 a year in interest at 5.95%, which the comparison rate cannot see.

Run your own loan size through the [loan comparison calculator](/calculators/loan-comparison/) rather than trusting the advertised percentage.

## When the comparison rate is most useful

### Spotting honeymoon rates

Introductory rates look attractive but revert to a higher standard variable rate. The comparison rate blends both periods over 25 years, which is exactly why it jumps. If the headline says 5.49% and the comparison rate says 6.85%, you know the long-term rate is closer to 7%.

### Catching high reversion rates on fixed loans

A two-year fixed rate at 5.59% with a comparison rate of 6.72% is telling you that once the fixed period ends the loan reverts to a rate well above 6.5%. You can refinance at that point, but the reversion rate is the price of forgetting to. Our guide to [fixed versus variable rates](/guides/fixed-vs-variable-rate/) covers timing that decision.

### Comparing loans of the same type

Within one category (two fee-free basic variables, or two package loans with the same annual fee), the comparison rate ranks accurately because the fee structure is similar and the loan size assumption cancels out.

## When it can mislead you

- **Large loans.** Above about $400,000 the fee weighting overstates fee-heavy loans. Do your own numbers.
- **Offset users.** If you keep savings or salary in an offset, a loan with a slightly higher comparison rate but a full offset can be cheaper by thousands. See [offset versus redraw](/guides/offset-vs-redraw/).
- **Short holding periods.** If you plan to refinance or sell within three years, the 25-year reversion rate baked into a fixed loan's comparison rate will never apply to you.
- **Split loans.** A loan split between fixed and variable has two comparison rates; neither describes the blended cost. Use the [split loan calculator](/calculators/split-loan/).
- **Interest-only periods.** The comparison rate assumes principal and interest for the whole term, so interest-only investment loans show a distorted figure. See [interest-only versus principal and interest](/calculators/interest-only-vs-principal-and-interest/).

## How to compare home loans properly

1. **Start with your actual loan amount and term.** A $617,500 loan over 30 years, not $150,000 over 25.
2. **List every fee for that loan.** Application, valuation, settlement, annual package, monthly account, discharge.
3. **Add the interest for a realistic holding period.** Most borrowers refinance or move within 5 to 7 years, so compare the total cost over 5 years, not 30.
4. **Value the features you will actually use.** An offset is worth the interest saved on your average balance. Redraw is worth little if you never use it.
5. **Check the reversion rate on any fixed or introductory product.** Write it down next to the headline rate.
6. **Check cashback and switching costs.** A $2,000 refinance cashback is worth about 0.05 percentage points a year on a $600,000 loan over five years; not nothing, but rarely decisive.
7. **Then look at the comparison rate as a sanity check.** If your ranking and the comparison rate disagree, make sure you understand why.

A broker does this exercise across dozens of lenders and is required by the Best Interests Duty to recommend the loan that is best for you, not the one with the best advertisement. See [how mortgage brokers get paid](/guides/how-mortgage-brokers-get-paid/) and our [home loans](/services/home-loans/) service.

## Common mistakes

- **Choosing the lowest comparison rate on a $700,000 loan.** It weights fees as though your loan were a fifth of the size.
- **Ignoring the reversion rate on a fixed loan** and being surprised two years later. Set a calendar reminder three months before expiry.
- **Assuming the comparison rate includes your offset benefit.** It does not, and for salary-earning households the offset often outweighs a 0.1% rate difference.
- **Comparing an interest-only comparison rate against a principal and interest one.** They are calculated on different repayment paths.
- **Treating the comparison rate as a quote.** Your rate depends on your loan-to-value ratio, loan size, occupancy and lender pricing on the day. A pre-approval is the only reliable quote. See [home loan pre-approval](/guides/home-loan-pre-approval/).

## Frequently asked questions

### What is the difference between interest rate and comparison rate?

The interest rate is what the lender charges on the balance you owe. The comparison rate adds most upfront and ongoing lender fees, plus any scheduled rate change, and expresses everything as a single percentage on a $150,000 loan over 25 years. Your repayments are calculated from the interest rate. The comparison rate exists purely to let you rank loans on total cost.

### Why is the comparison rate higher than the interest rate?

Because it includes fees and, for fixed or introductory loans, the higher rate the loan reverts to after the special period. A basic fee-free variable loan will have a comparison rate almost identical to its interest rate. A loan with a $395 annual fee or a honeymoon rate will show a much larger gap. Occasionally a comparison rate is lower than the headline rate, which usually means the reversion rate is lower than the fixed rate.

### Is a lower comparison rate always better?

No. The comparison rate assumes a $150,000 loan, so it overstates the effect of fixed-dollar fees on larger loans. On a $600,000 loan a package product with a $395 fee and a sharper rate can beat a fee-free loan that has a lower comparison rate. It also ignores offset accounts, which can save thousands a year. Use it to shortlist, then compare on your own loan amount.

### Does the comparison rate include stamp duty or LMI?

No. Government charges such as stamp duty and mortgage registration are excluded, as is lenders mortgage insurance, because they depend on the property and your deposit rather than the loan product. Conveyancing, building inspections and moving costs are also excluded. For a full picture of what a purchase costs, use the [upfront costs calculator](/calculators/upfront-costs/) alongside the loan comparison.

### Do brokers have to show comparison rates?

Yes. The comparison rate rules under the National Consumer Credit Protection Act apply to anyone advertising an interest rate for a consumer credit product, including brokers and comparison websites. Advertisements must show the comparison rate with the standard warning that it applies only to the example given. A broker's written recommendation to you must also disclose the comparison rate of each loan proposed.

### Can I use the comparison rate to compare fixed and variable loans?

Only loosely. A fixed loan's comparison rate blends the fixed rate with the reversion rate over 25 years, so it depends heavily on that reversion figure, whereas a variable loan's comparison rate reflects today's rate for the whole term. Neither captures future rate movements. Compare total cost over the fixed period plus your realistic holding period instead, and read our [fixed versus variable guide](/guides/fixed-vs-variable-rate/).

## Talk to GNT Finance

We compare loans on your real numbers, not the $150,000 example, and explain exactly why one product beats another for your situation. There is no cost to you for our home-loan service in most cases. [Book a free consultation](/contact/) or call 0426 403 703.