Interest Rate vs Comparison Rate: What’s the Difference?

When comparing home loans, many people focus only on the interest rate. While important, it doesn’t show the full cost of a loan.

Interest rate

The interest rate is what a lender charges on the money you borrow. It’s used to calculate your repayments and is the headline figure most loans are advertised with.

What it doesn’t include

Interest rates usually don’t include most fees, such as application fees or ongoing account fees. This means two loans with the same rate can cost very different amounts over time.

Comparison rate

The comparison rate is designed to show the true cost of a loan. It combines the interest rate plus most upfront and ongoing fees into one percentage and is based on a loan term stated on the fine print (e.g. 25 years). Because of this, it’s usually higher than the advertised interest rate.

Comparison rates are calculated using a standard loan amount and term, which makes it easier to compare loans but may not reflect your exact situation.

Why it matters

A loan with a low interest rate but high fees can end up costing more than a loan with a slightly higher rate and lower fees. Looking at both rates helps you make a more informed decision.

The best loan is the one that suits your loan size, goals and plans not just the lowest rate on the ad. As mortgage brokers, we can compare rates across multiple lenders for you. We look beyond the headline interest rate and examine the comparison rate, fees, loan features and your individual goals. This way, we help you secure the best deal available for your situation

Ready to see if you could be paying less on your home loan? Contact us today for a free loan review and let’s find the best deal for you.