Strategy · October 2026 · 5 min read
The Comparison Rate Is the Only Honest Number in a Home Loan Ad
Every home loan ad shows two rates. The big one is the headline. The small one beside it is the one doing the honest work.
Photo: Ashton 29, CC BY-SA 4.0 via Wikimedia Commons
Every home loan ad shows you two rates. The big one, in the headline, is the interest rate. The smaller one beside it, usually with an asterisk for company, is the comparison rate.
Most people read the big one. The small one is the one doing the honest work.
What a comparison rate actually is
A loan is not just an interest rate. There is often an application fee to get in, a monthly or annual fee to stay, and a discharge fee to leave. The comparison rate rolls the interest and most of those fees into a single percentage, so you can see what the loan really costs.
By law it has to be worked out the same way everywhere: a $150,000 loan over 25 years, principal and interest. Same formula, every lender, every ad. That standardisation is the entire point. It stops a lender advertising a beautiful rate and hiding the cost in the fees.
The two numbers in every ad
BigThe headline rateThe interest rate. What the ad wants you to read.
SmallThe comparison rateInterest plus most fees, rolled into one figure.
FixedThe formula$150,000 over 25 years, principal and interest. Same for every lender.
What it catches
Two loans can sit 0.2 percent apart on the headline rate and swap places once fees are counted. A low rate with a $395 annual package fee is not a low cost loan, and the comparison rate is where that shows up.
It is especially useful for spotting the cheap rate that exists to win a comparison table, not to save you money.
What it misses
The comparison rate is not the whole truth either. Government charges like stamp duty are not in it. Break costs on a fixed loan are not in it. Fees that only apply sometimes, like redraw or late payment fees, are generally not in it.
And the formula's loan is probably nothing like yours. A $150,000 loan over 25 years flattens the impact of fees that matter differently on a $700,000 loan over 30. On a bigger loan, the interest rate matters more and the fixed fees matter less.
Use the comparison rate to build your shortlist. Do not use it to make the final decision.
How to actually use it
Line the loans up by comparison rate and anything still standing is worth a real quote. Then run your own numbers on your own loan size. Our repayments calculator will show you what each option costs a month, and the difference between two loans over a year is usually the number that decides it.
If a loan's comparison rate is much higher than its headline rate, ask what fee is doing that. There is always a fee doing that.
The short versionThe comparison rate folds interest and most fees into one figure, calculated the same way for every lender. It catches low rates with fat fees, and it misses government charges, break costs and your actual loan size. Shortlist on it, then compare real quotes.
Are you looking at two loans where the cheaper rate somehow costs more? Book a call and we will put them side by side on your numbers.
The information in this article is general in nature and does not take into account your personal circumstances. Speak with a qualified mortgage broker before making lending decisions.
