Comparison Rate vs Headline Rate: Why It Matters

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The advertised mortgage rate is rarely what you actually pay. The comparison rate is what you pay. Knowing the difference saves thousands.

What Headline Rate Is

The interest rate the lender charges on your loan balance. It’s the number marketing leads with.

Example: “Variable home loan, 5.85% p.a.”

What Comparison Rate Is

The combined cost of the loan including:

Headline interest
Annual fees (account-keeping, package fees)
Establishment fees (spread over the loan term in calculation)
Discharge fees

Example: “5.85% p.a., comparison rate 6.12% p.a.”

The 0.27% difference reflects bundled fees.

When Comparison Rate Diverges Most

Low-rate, high-fee loans: Banks offering 5.5% with a $395 annual fee may have a comparison rate of 5.9% — making them functionally identical to a 5.9% no-fee loan.

Honeymoon rate loans: First 12 months at 5%, then 6.5%. Comparison rate over the full term: 6.3%.

Mortgage offers with cashback bonuses: $3,000 cashback at signup looks great, but the comparison rate may reveal it doesn’t actually beat a competitor without bonus.

How Comparison Rate Is Calculated

By law in Australia: 25-year term, $150,000 loan, principal & interest. This standardizes the comparison.

If your loan is different (40-year term, $800k, interest-only), the actual comparison may differ slightly — but the relative ranking between lenders holds.

What Comparison Rate Doesn’t Include

Some real costs not captured:

LMI premiums (if your LVR is over 80%)
Property valuation fees
Solicitor/conveyancing costs (separate)
Government fees (registration, stamp duty)
Break costs on fixed rates

Practical Decision Framework

When comparing two loans:

Compare comparison rates first (apples to apples)
Then look at features (offset, redraw, split capability)
Finally consider relationship factors (your existing accounts, broker access)

If comparison rates are within 0.05%, features matter more than rate.

The Game Lenders Play

Some products advertise headline rates with massive intro discounts:

“5.49% p.a. for the first 12 months!”
Comparison rate over full term: 6.20%
After year 1, you revert to a much higher rate

Read the comparison number, not the marketing number.

How to Find the Best Real Rate

Aggregator sites (Canstar, Mozo, Finder) sort by comparison rate
Brokers see comparison rates across 25+ lenders
Calculate your own if your loan structure differs significantly from the standard

Beyond Comparison Rate

The cheapest comparison rate isn’t always the best loan. Watch for:

Limited features: No offset, no redraw, restrictive extra repayments
Slow settlement: Some lenders take 8 weeks to settle vs 4 weeks
Customer service quality: Some discount lenders have terrible support
App quality: You’ll use it weekly for 30 years

💡 Pro Tip: A 0.1% better comparison rate that comes with worse features may cost you more than a slightly higher rate with the right offset.