What is a comparison rate?
A comparison rate is a standardised percentage that combines a loan's advertised interest rate with all ongoing fees to show the true annual cost of borrowing.
The comparison rate expresses the total cost of a home loan as a single percentage figure, blending the interest rate with upfront and ongoing fees charged by the lender. It exists to give borrowers a clearer picture than the headline interest rate alone can provide.
When you see a mortgage advertised in Sydney, the comparison rate appears alongside the interest rate. For example, a loan might carry a 5% interest rate but a 5.3% comparison rate because the lender also charges application fees, valuation fees, or annual account fees. Those costs are amortised across the loan term and added into the comparison rate calculation.
This standardisation matters because different lenders structure their fees differently. One may offer a lower interest rate but charge higher fees upfront. Another may have a higher rate but minimal costs. The comparison rate lets you see past these variations to the actual annual percentage cost of borrowing.
Lenders in Australia are required by law to disclose the comparison rate alongside the interest rate. It does not account for individual circumstances like redraw fees or offset account features, so it remains one tool among several when evaluating loan offers. A mortgage broker can help you interpret comparison rates across multiple products and find options suited to your situation.