The Australian comparison rate is calculated on a loan you don't have

How the regulated comparison rate is calculated

Australia's comparison rate is mandated by the National Consumer Credit Protection Act 2009 and the supporting Regulations. ASIC requires every credit advertisement to display the comparison rate alongside the headline rate. The calculation:

1. Take the lender's headline interest rate.
2. Add the impact of standard fees and charges (establishment fee, monthly account fees, etc.).
3. Express that combined cost as an annualised percentage rate on a hypothetical loan of $150,000 over 25 years.

The rule was designed in 2002 when typical Australian home loans were materially smaller and shorter. In 2026 the median owner-occupier loan in metropolitan Sydney and Melbourne is in the $700k–$1M range, frequently over 30 years. The $150k / 25-yr anchor has not moved.

Why the standard scenario distorts ranking

Lenders compete on two distinct cost dimensions:

• Headline interest rate.Scales with loan size — a 0.10% rate difference on $1M is $1,000 a year, on $150k it's $150 a year.
• Fixed dollar fees (upfront establishment + monthly account fees). These are constant in absolute terms regardless of how much you borrow.

Because the standard comparison rate forces both into the same $150k scenario, fees get expressed as a much larger % impact than they actually have on a real-world $700k loan. A lender with a slightly higher rate but $0 fees can look worse on the regulated comparison rate while being meaningfully cheaperon the loan you're actually taking out.

How to use this when comparing lenders

The regulated comparison rate is still a useful first-pass filter — lenders quote it and you can scan a comparison site quickly. But before you commit, run the actual loan numbers for your two or three shortlist offers through this calculator (or any spreadsheet) at yourloan amount and term. That's the number that determines what you actually pay.

• If your loan is materially larger than $150k: fixed-dollar fees matter less than the published comparison rate suggests. Lenders with low rates and modest fees often win the true ranking.
• If your loan term is 30 years not 25: the rate differential compounds for an extra 60 months. A 0.05% rate gap is worth more on a 30-year loan than on a 25-year loan.
• If a lender's headline rate is low but fees are high:they're betting you'll judge them on headline rate. The published comparison rate corrects for this — but only at $150k / 25yr. Run the math at your size.
• Watch for “break costs” not in the comparison rate.Refinancing penalties, fixed-term exit fees and discharge fees aren't included in the legally-defined comparison rate. If you might refinance in 3-5 years, those matter.

Methodology

True effective rateis computed by solving for the rate that, applied to your actual loan principal less upfront fees, produces a monthly payment equal to the actual loan's monthly amortising payment plus monthly fees. This is the same methodology the regulated comparison rate uses, but with your loan's actual principal and term substituted for the $150k / 25-yr fixed scenario.

Fees included: the calculator handles upfront establishment fees and monthly account/package fees. Excluded: government charges, mortgage insurance (LMI), break costs, and discharge fees. These are excluded from the regulated comparison rate as well, so the comparison is apples-to-apples.

Numerical method: bisection over the rate range 0.01%–50% annual, 100 iterations, converges to better than 0.0001% precision. Source: lib/mortgage-calc.ts.

Regulatory references: ASIC MoneySmart on comparison rate; National Consumer Credit Protection Regulations 2010.