Understanding comparison rates.
When you start researching home loans, you’ll often see two numbers shown side-by-side: the interest rate and the comparison rate. Most borrowers recognise the interest rate, but the comparison rate can feel vague or confusing — especially because it’s often higher.
The comparison rate isn’t there to trick you. It’s simply a way of showing the true cost of a loan once standard fees and charges are factored in. Understanding this helps you compare products more accurately.
At Lumo, we help clients look beyond the headline rate so they can choose a loan that makes sense not just today, but over the long run.
What the comparison rate actually represents
A comparison rate combines:
The interest rate, plus
Standard fees and charges typically applicable to the loan
It’s expressed as a single percentage to help borrowers understand the real cost of the loan over time.
It was introduced so that lenders couldn’t advertise a low interest rate while hiding higher ongoing fees in the fine print.
What’s included in a comparison rate
Usually included:
Application or establishment fees
Monthly or annual fees
Settlement fees
Valuation fees (in some cases)
Usually not included:
Lender’s Mortgage Insurance (LMI)
Government fees
Package fees (if optional)
Extra repayments or redraw benefits
Offset savings
Break costs on fixed loans
Fee waivers or discounts you might negotiate
This means the comparison rate gives a useful guide — but not the whole picture.
Why comparison rates look higher than interest rates
If a variable loan is advertised at 6.00% and has a 6.20% comparison rate, that difference typically reflects the cost of:
A package fee
Monthly account fees
Valuation or settlement charges
It doesn’t mean the loan is bad — just that there are costs beyond the base interest rate.
Why comparison rates aren’t perfect
Comparison rates are helpful, but they’re based on certain assumptions:
A 30-year loan term
A loan amount of $150,000 (an outdated benchmark for many borrowers)
No extra repayments
Standard fees only
Because of these assumptions, the comparison rate may not reflect:
Your actual loan size
How you intend to use an offset account
How often you'll make extra repayments
Whether you’ll refinance before 30 years
Whether the fees apply to your specific product
So while comparison rates are a good reference point, they shouldn’t be the only factor in deciding on a loan.
How to use comparison rates when choosing a home loan
Think of the comparison rate as:
A quick sense-check that helps highlight loans with higher fees.
Good questions to ask:
Does this product have annual or monthly fees?
Does the comparison rate jump significantly above the interest rate?
Are you paying for features you won’t use?
Would a no-fee loan with a slightly higher interest rate actually cost less?
Sometimes the lowest comparison rate is not the best loan for your situation — especially if you need features like offset access or multiple splits.
When comparison rates are most useful
Comparison rates are particularly helpful when comparing:
Two loans with very similar interest rates
Package vs. basic loans
Fixed vs. variable rates with different fee structures
Loans with different annual or monthly fees
Used well, they act as a filter — not a final decision-maker.
Our approach at Lumo
When helping clients compare loans, we look at:
The interest rate
The comparison rate
Your expected usage of features (offset, redraw, splits)
Any fees that apply to your situation
How long you’re likely to keep the loan
The overall long-term cost
This gives a clearer, more personalised picture than the comparison rate alone can provide.
Let’s chat.
If you're comparing loans and want help understanding interest rates, comparison rates and real long-term costs, we can walk you through it all in plain language. Let’s chat.
This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.