Comparison Rate vs Interest Rate Explained

The short answer

The interest rate is the percentage a lender charges on your outstanding loan balance; it sets the interest portion of each repayment. The comparison rate rolls the interest rate together with most mandatory fees (application, ongoing and discharge fees) into a single percentage, so you can compare loans on their true cost rather than the headline rate alone. The comparison rate is almost always higher than the interest rate, because it adds the cost of fees on top.

How it works in Australia

In Australia, lenders are legally required to publish a comparison rate alongside any advertised home-loan interest rate. This comes from Part 10 of the National Credit Code (under the National Consumer Credit Protection Act 2009), which exists so lenders can't hide a high-fee loan behind a low sticker rate.

The catch is that every comparison rate is calculated on the same standard assumptions, not your actual loan:

• A loan amount of $150,000
• A term of 25 years
• A secured loan with monthly repayments

Because of this, you'll always see a warning like "this comparison rate is true only for the example given and may not include all fees and charges". If your loan is $600,000 over 30 years, the published comparison rate is only a rough guide: the fees are spread across a different balance and term.

What the comparison rate includes: the interest rate, plus most fees and charges you must pay, such as application/establishment fees, ongoing account fees, and discharge fees.

What it leaves out: government charges (stamp duty, registration), fees that may or may not apply (early-repayment or break costs, redraw fees, late fees), and, importantly, the value of features like an offset account, extra repayments or redraw. A loan can have a slightly higher comparison rate but save you far more through an offset you actually use. See MoneySmart on choosing a home loan for the official explainer.

A worked example

Two lenders both advertise a 6.00% p.a. variable interest rate on a home loan.

	Loan A	Loan B
Interest rate	6.00%	6.00%
Application fee	$0	$600
Ongoing fee	$0	$10/month ($120/yr)
Comparison rate (on the standard $150k / 25yr)	~6.00%	~6.13%

The interest rates are identical, but Loan B's fees push its comparison rate higher, flagging that it costs more over time.

Now apply this to a real $600,000 loan at 6.00% over 30 years. The monthly principal-and-interest repayment is about $3,597, regardless of fees. Over 30 years that's roughly $695,000 in interest. Loan B's extra costs on this loan would be the $600 establishment fee plus $120/year × 30 = $3,600 in ongoing fees, about $4,200 more spread over the life of the loan.

Notice that the published 6.13% comparison rate (built on a $150k/25yr loan) doesn't directly tell you that $4,200 figure. That's why modelling your actual numbers beats trusting a standardised rate.

Model this in True Loan

True Loan is free and runs entirely in your browser. To compare two loans the way the comparison rate is meant to:

1. Open the side-by-side compare tool.
2. Set both scenarios to your real loan amount and term (e.g. $600,000 over 30 years).
3. Enter each lender's interest rate. Where rates differ, you'll see total interest and total cost diverge.
4. If a loan offers an offset account, use the dedicated Offset balance input to see how much that feature saves. Comparison rates ignore this entirely.
5. If you plan to pay more than the minimum, use the separate Extra repayment ($/month) input. (Offset and extra repayments are two distinct inputs in True Loan.)

The total-cost-over-the-life-of-the-loan figure is the apples-to-apples number the comparison rate is trying to approximate, computed on your loan rather than a $150k standard.

Common questions and mistakes

Is a lower comparison rate always the cheaper loan? Not necessarily. It's calculated on a $150,000 / 25-year loan, so for a large, long loan the ranking can shift. It also ignores offset and redraw savings.

Why is the comparison rate higher than the interest rate? Because it adds the cost of fees on top of the interest. If a loan has no fees, the two are nearly identical.

Does it include stamp duty or LMI? No. Government charges and lenders mortgage insurance aren't in the comparison rate. Model those separately: True Loan estimates stamp duty for all states and LMI in its upfront-costs section.

Should I just pick the lowest comparison rate? That's a financial decision only you (or a licensed adviser) can make. This guide only explains how the numbers work.

For related reading, see fixed vs variable home loan total cost, total interest on a $600k loan over 30 years, and is refinancing worth it for a 0.5% lower rate.

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Figures here are estimates for the 2025–26 Australian financial year. Always confirm rates and fees with the lender and check official sources such as moneysmart.gov.au. This is general information, not financial or credit advice.