Comparison rates: purpose and limitations

A comparison rate is a single percentage that combines a loan's interest rate with most of its known fees and charges. Australian law requires it to appear beside any advertised interest rate for a fixed term consumer loan, so that a low headline rate cannot hide high fees. For home loans it is calculated on a standard example of $150,000 borrowed over 25 years.

That standard example is both the strength and the weakness of the measure. It makes every advertisement comparable with every other, but it describes a loan far smaller than most Australian mortgages, it assumes the loan runs its full term, and it leaves out costs and features that can matter more than the fees it includes. The comparison rate is a useful first filter. It is not a substitute for working out the cost of a loan at the borrower's own loan size.

The legal requirement for comparison rates in Australia

Comparison rates are governed by Part 10 of the National Credit Code, which is Schedule 1 to the National Consumer Credit Protection Act 2009. Section 157 states that the object of the Part is to assist consumers to identify the true cost of credit, and that the comparison rate reflects the total cost of credit arising from interest charges and other prescribed credit fees and charges. ASIC administers the Code.

The main rules, as set out in the Code and the National Consumer Credit Protection Regulations 2010, are as follows:

• When it is mandatory. Under section 160, a credit advertisement that contains an annual percentage rate must also contain the relevant comparison rate. The Part does not apply to continuing credit contracts, such as credit cards, or to low cost credit contracts.
• Identification and prominence. Under section 164, the figure must be identified as a comparison rate and must not be less prominent than the interest rate or any repayment amount shown in the advertisement.
• Stated basis. Under section 162, the advertisement must state the product name and the amount and term to which the comparison rate applies.
• Warning. Under section 163 and regulation 99, a prescribed warning must accompany the rate.

A note to section 160 records that publishing a non-compliant credit advertisement is an offence under the Code. ASIC's Regulatory Guide 234 on advertising, reissued in June 2026, gives examples of conduct it considers would make a comparison rate less prominent than the interest rate: showing it in smaller or faded type, requiring a consumer to click through or hover to see it online, or placing it away from the interest rate where it is easy to overlook.

The standard basis: $150,000 over 25 years

Section 161 of the Code requires lenders to use whichever of the designated amounts and terms most closely represents the typical amount and term for the product being advertised. Regulation 97 prescribes six designated combinations, ranging from $250 over two weeks to $30,000 over five years for smaller loans. The largest, and the only one suited to a mortgage, is $150,000 for a term of 25 years. In the compilation of the Regulations dated March 2025, which was the version consulted for this article, that figure remained in place.

Because $150,000 is the largest prescribed amount, home loan comparison rates are quoted on that basis regardless of how much a lender's customers actually borrow.

What fees a comparison rate includes and excludes

Regulation 100 sets out the formula. In simplified terms, it finds the single interest rate at which the repayments plus the included fees would exactly repay the amount borrowed, and expresses it as a nominal annual rate correct to at least the nearest one hundredth of one per cent. The fees included are credit fees and charges, other than government fees, charges or duties, that are ascertainable when the rate is disclosed. Section 166 adds that a fee is not ascertainable, and need not be included, if its imposition or amount depends on events that may or may not happen.

Generally included	Generally not included
Interest at the advertised rate, including any known change such as a fixed period reverting to a variable rate	Government charges such as stamp duty and mortgage registration fees
Application, establishment and settlement fees charged by the lender	Fees that depend on borrower behaviour, such as redraw, late payment and early repayment or break fees
Ongoing monthly or annual account and package fees that apply to every borrower	Lenders mortgage insurance, which depends on the deposit
Known discharge fees payable at the end of the loan	Cost savings such as fee waivers, and the value of features such as an offset account

ASIC summarises the position in similar terms: the comparison rate includes the interest rate and most fees and charges, but not government fees or charges that apply only in certain circumstances, such as paying the loan off early. ASIC also notes that the rate allows comparison on cost only and does not capture features such as flexible repayment arrangements. Regulatory Guide 234 also describes a case in which a bank advertised a discounted rate available only through a package with an annual fee, but left that fee out of the comparison rate. ASIC considered that the figure understated the true cost, and the bank agreed to correct it. The classification in the table is general, and borrowers can ask a lender which fees were included in a particular calculation.

The prescribed long-form warning in regulation 99 makes the same point: the rate applies only to the example given, and costs such as redraw or early repayment fees, and savings such as fee waivers, are not included but may influence the cost of the loan.

Why the comparison rate can mislead for larger loans

Most fees are fixed dollar amounts. A $395 annual fee is a meaningful share of the cost of a $150,000 loan and a small share of the cost of a $600,000 loan. The published comparison rate therefore overstates the effect of fees for most mortgage borrowers, and it can reverse the ranking of two loans.

Worked example: two hypothetical loans

The figures below are illustrative. Loan A has an interest rate of 5.99 per cent, a $600 establishment fee and a $395 annual package fee. Loan B has an interest rate of 6.14 per cent, a $300 establishment fee and no ongoing fees. Both are principal and interest loans over 25 years with monthly repayments, and the comparison rates are approximations calculated by treating the annual fee as paid at the end of each year.

Measure	Loan A (5.99%, higher fees)	Loan B (6.14%, low fees)
Comparison rate on $150,000 (as advertised)	About 6.38%	About 6.16%
Total repayments and fees on $150,000	$300,136	$294,099
Equivalent rate recalculated on $600,000	About 6.09%	About 6.15%
Monthly repayment on $600,000	$3,862.14	$3,917.32
Total repayments and fees on $600,000	$1,169,117	$1,175,495

Warning: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

On the advertised basis, Loan B looks clearly cheaper, and for a $150,000 borrower it is, by about $6,037 over the term. For a $600,000 borrower the position reverses: Loan A costs about $6,378 less over 25 years, because its lower interest rate saves far more than its fees cost.

Other assumptions that rarely match reality

• The full term. The calculation assumes the loan runs for 25 years. Many borrowers refinance or sell within a few years, which makes upfront fees weigh more heavily than the comparison rate suggests and distant discharge fees weigh less.
• Fixed rate loans. For a two or three year fixed loan, most of the 25 year calculation is based on the revert rate that applies afterwards. A sharp fixed rate paired with a high revert rate can show a high comparison rate even though the borrower intends to renegotiate at the end of the fixed term.
• Negotiated pricing. The advertised rate may differ from the rate an individual borrower is offered, which depends on the deposit, loan purpose and repayment type.

Offset accounts and package fees in the comparison rate

Package loans commonly charge an annual fee in return for an interest rate discount, an offset account and fee waivers on other products. The comparison rate captures the cost of that fee in full and none of the benefit of the offset account. For a borrower who keeps little in the account, the fee may buy nothing of value, and a basic loan may be cheaper.

A rough test is to estimate the annual interest saving, which is the average offset balance multiplied by the loan interest rate, and compare it with the annual fee. For instance, a hypothetical average balance of $20,000 on a loan at 6.00 per cent saves about $1,200 of interest a year, well above a $395 fee. The offset account calculator can model the effect over the life of a loan.

How to compare home loans properly

1. Use the comparison rate as a screen. A wide gap between the interest rate and the comparison rate is a signal to look closely at the fee schedule.
2. Generate a Key Facts Sheet at the actual loan amount. The National Consumer Credit Protection Act requires lenders whose websites accept home loan applications or inquiries to let consumers generate a Key Facts Sheet for their standard home loans. It sets out costs for the amount and term the consumer enters rather than for the standard example.
3. Add up costs over a realistic holding period. Combine upfront fees, ongoing fees and interest over the period the loan is likely to be held, such as five years, and include any discharge fee. The mortgage repayment calculator and the loan comparison page can assist.
4. Check the revert rate on fixed loans. Compare the fixed period on its own merits with the fixed versus variable calculator, and note what rate applies afterwards.
5. Account for excluded costs. Lenders mortgage insurance, government charges and break fees sit outside the comparison rate. The LMI calculator gives an estimate of the first of these.
6. When refinancing, include switching costs. The refinance calculator can estimate how long it takes for a lower rate to recover discharge, application and government fees.

Common mistakes when reading comparison rates

• Treating the comparison rate as the rate that will be charged. Interest is charged at the interest rate, and fees are charged separately.
• Comparing a comparison rate from one lender with an interest rate from another.
• Ignoring the warning text, which states the amount and term on which the figure is based.

Further background on rate types is available on the interest rates hub and in the home loans guide. This article provides general information only and is not legal or credit advice. A licensed adviser or credit representative can compare specific products against an individual's circumstances.