Picture two home loans, both advertised at 6.00%. On the headline number, they look identical. Then you glance at the smaller figure beside each one and see two different comparison rates: 6.00% on one and 6.40% on the other.
That gap isn’t an error, and it isn’t marketing spin. It’s the comparison rate doing exactly what it was designed to do: showing you that two loans with the same interest rate can cost very different amounts once fees are counted. Here’s where the difference comes from, how big it can get, and how to use it before you choose a lender.
What the comparison rate adds to the interest rate
The interest rate measures one thing: the cost of the money you borrow. The comparison rate starts from that figure and adds in most of the fees and charges attached to the loan, then expresses the whole lot as a single annual percentage. ASIC’s MoneySmart service describes it as a way of working out the true cost of a loan (ASIC MoneySmart).
So if two loans share an interest rate, any gap between their comparison rates has to come from the fees. The wider the gap, the more fees one loan is carrying compared with the other.
If you want the full background on what the figure is and why lenders must show it, start with our guide to what a comparison rate is. This article picks up from there and focuses on the fee side of the story.
The fees that move the number
Under the National Credit Code, advertised comparison rates must account for most of the costs of the loan, not just the interest (ASIC, National Credit Code overview). In practice, the fees that tend to separate one loan’s comparison rate from another’s include:
- Upfront fees, such as application or establishment fees charged when the loan is set up.
- Ongoing fees, such as monthly account-keeping fees or annual package fees that continue for the life of the loan.
- Fees that vary by product, such as a package fee that bundles an offset account, a credit card and other features into one yearly charge.
Two lenders can quote the same interest rate while charging very different amounts across those categories. One might waive every fee. Another might charge a package fee every year. The interest rate would never show you that difference. The comparison rate does.
A worked example
Here’s an illustration using the standardised loan every comparison rate is calculated on: $150,000 over 25 years (Regulation 71, NCCP Regulations 2010). Both loans below carry a 6.00% interest rate.
| Loan A | Loan B | |
|---|---|---|
| Interest rate | 6.00% | 6.00% |
| Upfront application fee | $0 | $600 |
| Annual package fee | $0 | $395 |
| Approximate comparison rate | about 6.00% | about 6.40% |
The monthly repayment on the interest alone is the same for both, roughly $966. But Loan B adds an upfront fee and a yearly fee on top. Spread across the 25-year standard example, those costs lift the all-in cost to around 6.40%. That’s 0.40 percentage points of extra cost that the interest rate alone would never reveal.
These figures are illustrative only, and real lenders’ fee structures vary. The point is the mechanism: same rate, different fees, different comparison rate.
Why the gap shrinks on a bigger loan
Here’s a wrinkle that catches a lot of borrowers out. The comparison rate is always calculated on that $150,000 example, but most people borrow more than that.
A $395 annual fee is a meaningful slice of a $150,000 loan. On a $700,000 loan, the same $395 is a much smaller share of the balance, so its real impact on your cost is smaller than the advertised comparison rate suggests. In other words, a fee-heavy loan can look worse in an advertisement than it actually is for a larger borrower, and a fee-light loan can look better.
That’s why the comparison rate works best as a way of ranking loans against each other, not as a precise prediction of your own cost. We cover this effect in more detail in Interest Rate vs Comparison Rate: What’s the Difference?
Other reasons two comparison rates can differ
Fees are the main driver when interest rates match, but they’re not the only one.
Fixed-rate loans and the revert rate. The comparison rate runs across the full 25-year example, not just your fixed term. For a fixed loan, the calculation has to assume what happens once the fixed term ends, which means reverting to the lender’s variable rate for the remaining years. Two lenders with identical fixed rates can show different comparison rates purely because their assumed revert rates differ.
Introductory or discounted periods. Loans that offer a lower rate for an initial period can show a comparison rate that blends the introductory and standard rates, which changes how they compare against a loan with one steady rate.
Fees that are included versus excluded. The comparison rate covers most fees, but not all costs. Government charges such as stamp duty are outside it, and so are fees that only apply in particular circumstances, like discharge fees if you leave the lender later (ASIC, National Credit Code overview). Two loans with the same comparison rate can therefore still differ once those costs apply.
How to use this when you compare loans
Treat the gap between the interest rate and the comparison rate as a quick read on how fee-heavy a loan is. A small gap suggests few fees. A wide gap is worth investigating.
Then ask three practical questions before you shortlist a loan:
- What are the upfront and ongoing fees, and can any be waived?
- If there’s a package fee, will I actually use what it bundles, such as an offset account? A package fee can be worth paying if you’ll use the features, and a waste if you won’t.
- What would the all-in cost look like on my actual loan amount, not the $150,000 example?
That last question matters most. The standardised figure is useful for filtering lenders, but your own numbers decide what you’ll really pay.
Getting your real numbers
Comparing fee structures across dozens of lenders is slow work, and the standard example won’t tell you what a loan costs at your balance and term. That’s where we can help. The hfinance team compares across 50+ lenders and can show you the full cost of each option on your own numbers, including whether a lower rate is hiding higher fees.
If you’re already in a loan and wondering whether you’re paying more than you need to, our refinancing page is a good place to start, or get in touch for a review.
This article is general information only and does not take into account your personal financial situation or objectives. Figures in the worked example are illustrative estimates based on stated assumptions and will differ from real loan offers. Speak with an hfinance broker before making any lending decisions.