Look at any Australian home loan advertisement and you will see two percentages. There is the interest rate in big type, and a second, usually higher, number next to it called the comparison rate. The gap between them is one of the most useful things a borrower can learn to read.
Why there are two numbers
The advertised interest rate is the cost of the loan alone. It does not include the fees that come with it. By law, lenders must also publish a comparison rate, which bundles the interest rate together with most standard fees into a single figure. The point is to stop a low headline rate from hiding an expensive loan underneath it. The comparison rate is usually higher than the advertised rate because it is meant to reveal more of the loan's cost.
How to read the gap
A small gap between the two numbers usually means low fees. A large gap is a flag: the loan may carry an attractive rate but heavy ongoing or upfront costs. This matters most with "honeymoon" or introductory rates, where a sharp advertised number reverts to something higher later. The comparison rate smooths that out across the loan, so it often exposes a deal that looks better than it is.
What the comparison rate does not tell you
It is a guide rather than a personal quote. Two things are worth knowing:
- It is based on a standard loan scenario. The comparison rate is calculated on a set loan amount and term defined by regulation, so every lender is measured on the same basis. Your loan is probably a different size and length, so your real comparison rate will differ.
- It cannot capture everything. Some fees, future rate changes, redraw or offset benefits, and package perks may sit outside the calculation. A loan with a slightly higher comparison rate but a genuinely useful offset account can still be the cheaper choice for you.
How to use it
Use the comparison rate to line up similar loans honestly, then read the fee list before you decide. Treat a big gap between the advertised and comparison rates as a prompt to ask where the cost is hiding. The advertised rate is what the lender wants you to see. The comparison rate is closer to what you will actually pay.