How to Read a Home Loan Rate
An interest rate on its own doesn’t tell you what a loan will cost. Next to almost every advertised rate sits a comparison rate, usually a little higher and marked with an asterisk. If you’ve ever wondered what is a comparison rate, and why it rarely matches the headline figure, start with what goes into it. Fees, any fixed period and a benchmark loan that may look nothing like yours all shape the number.
Once you can read those parts, a rate table makes far more sense. And the loan that looks cheapest on paper isn’t always the cheapest for you.
Interest rate vs comparison rate
Your interest rate is the yearly rate charged on the amount you owe, quoted as “p.a.” (per annum). It’s what your monthly payments are worked out from.
The comparison rate spreads most of the loan’s standard costs across the life of an example loan and shows the result as one yearly percentage. It isn’t a simple sum of the rate and the costs. Moneysmart describes it as a rate that helps you work out the true cost of a loan. Under the National Credit Code, lenders must include a comparison rate when they advertise most consumer loans with a set term, including home loans.
Here’s a quick way to read the gap. When the two figures sit close together, few standard costs are built in. A wider gap points to more costs or, on a fixed loan, a different rate applying later on.
What goes into the comparison rate?
Every lender works it out on the same example: $150,000 borrowed over 25 years, with monthly principal and interest repayments. Using one example lets you line up figures from different lenders. It also means the result is only exact for that one loan.
That’s why the same warning appears wherever these rates are published, including on our Home Loan Rates page:
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
So what’s in, and what’s out?
| Usually included | Usually not included |
|---|---|
| The interest rate, including the rate a fixed loan reverts to after its fixed term | Government charges such as transfer duty and mortgage registration |
| Establishment or application fees | Lenders Mortgage Insurance (LMI) |
| Ongoing monthly or annual service fees | Break costs, redraw fees and late payment fees |
| Lender valuation and settlement fees | Fee waivers, discounts and the value of features like an offset account |
For the exact fees on any loan, look at its Key Facts Sheet and the lender’s fee schedule.
Where the number can mislead
Your loan probably isn’t $150,000 over 25 years
Upfront and monthly costs are set dollar amounts. Spread across a small loan, they push the figure up a lot, while across a larger loan the same fees barely move it. That can flip which loan looks cheaper.
Here’s a made-up example. Loan A charges 6.14% p.a. with a $600 establishment fee and a $10 monthly service fee. Loan B charges 6.24% p.a. with no fees.
| Loan A (6.14% plus fees) | Loan B (6.24%, no fees) | |
|---|---|---|
| Comparison rate ($150,000 over 25 years) | 6.29% | 6.24% |
| Monthly cost on $600,000 over 30 years, including fees | $3,661 | $3,690 |
| Total paid on $600,000 over 30 years | about $1,318,700 | about $1,328,500 |
At the benchmark, Loan B looks better. Over 30 years on a $600,000 loan, Loan A works out roughly $9,800 cheaper. Treat these figures as an illustration only. They assume the rate never changes, and neither loan is a Capricornian product.
A fixed rate is partly about what comes after it
With a fixed loan, the figure also allows for the rate the loan reverts to when the fixed period ends.
Here’s another made-up example. A lender offers a 1-year fixed rate of 5.99% p.a. and a 3-year fixed rate of 6.29%, both with a $600 establishment fee and reverting to 6.79% afterwards. The 1-year loan’s comparison rate works out at 6.75%. The 3-year loan starts higher, yet its comparison rate is lower, at 6.69%.
Why? With a 1-year term, 24 of the 25 years in the example are worked out at the later rate. A low short-term fixed rate tells you about year one, while the comparison figure says more about the 24 years that follow. Before you fix, ask what rate the loan will roll onto.
Features don’t show up in the number
An offset account, the freedom to pay extra and free redraw can all save you money. None of them changes the comparison rate. With a 100% offset account, every dollar sitting in it reduces the balance you’re charged interest on, yet that saving is invisible in a single percentage. You’ll find how the two features work in our guide to offset vs redraw.
How to read a home loan rate table
Rate tables pack a lot into a few rows. Here’s what to look for on our Home Loan Rates page, or on any other lender’s list of mortgage rates.
Loan purpose. Owner occupied and investment loans are priced separately, and investment rates are often higher. Make sure you’re reading the right row.
LVR tier. LVR (loan to value ratio) is the loan amount as a share of the property’s value. Borrow more than 80% and you’ll usually pay a higher rate, so many tables show two rows for the same loan.
Minimum loan size. Some rates only apply above a set amount. Check the loan amount column before you compare.
Fixed term. Fixed rates are listed by term. Check each term’s comparison figure, not just the rate itself.
Loading for loan type. Lenders often add a margin for interest only or construction loans. It’s usually in the fine print, not the headline rate.
Symbols and the effective date. An asterisk points to the comparison rate warning. Other symbols point to conditions, so read the fine print under the table. Check the effective date too. Rates can change without notice, so confirm them with your lender before you apply.
Home loan fees explained
Most home loan fees are charged when the loan is set up, while it runs, when you use a feature or make a change, or when you pay it out.
| Fee | When you pay it | Usually in the comparison rate? |
|---|---|---|
| Establishment or application fee | At the start | Yes |
| Valuation and settlement fees | At the start | Yes, when the lender charges them |
| Lenders Mortgage Insurance (LMI) | At the start, when borrowing above a set LVR | No |
| Ongoing service or package fee | Monthly or yearly | Yes |
| Redraw, variation or rate lock fees | When you use the feature or change the loan | Generally no |
| Break costs | When you repay or switch a fixed loan early | No |
| Discharge fee | When you pay the loan out | Varies, so check the Key Facts Sheet |
Exit fees, charged simply for paying a loan out early, are banned on new home loans. Discharge fees covering the paperwork of paying out a loan may still apply, and lenders can charge reasonable break costs when a fixed loan ends early.
For our current fees, see the Schedule of Loan Fees and Charges. You can also compare each loan’s features side by side on our home loan comparison page.
Queensland costs that sit outside the loan
Buying in Queensland adds government costs that no comparison rate includes. Transfer duty (stamp duty) is set by the Queensland Revenue Office, which offers concessions for eligible homes and first homes. Registering the mortgage and the property transfer attracts Titles Queensland fees. Budget for them separately.
Use a Key Facts Sheet to compare like for like
This one-page summary fills that gap, because it’s worked out on your own loan amount and term. Moneysmart notes it’s compulsory and set out the same way by every lender, so you can put two side by side. Each one shows a personalised comparison rate, your monthly repayment, the total amount you’d repay and the fees.
You can create one in a minute with our Home Loan Key Facts Sheet tool. Enter your loan amount, set the term and choose a product. You’ll get a report covering the interest rate, repayments and fees, and you can run it for each loan you’re weighing up.
It won’t tell you everything, though. Offset and redraw, extra repayment limits and break costs aren’t covered, so ask about those directly.
Questions to ask before you choose a loan
- What’s the comparison rate on my loan amount and term, not just the benchmark?
- For a fixed rate, what will the loan revert to, and when?
- Which fees are charged upfront, which are ongoing, and which only apply when I use a feature?
- Can I make extra repayments, and is there a limit?
- What would it cost to break a fixed term or pay the loan out early?
Talk to a lending specialist or broker
Comparing home loan rates in QLD is easier with someone who can run the numbers on your own loan. Talk to one of our lending specialists in the branch, or call 1300 314 900. To get started, check our current home loan interest rates or browse our home loans.
Frequently asked questions
What is a comparison rate on a home loan?
It’s one percentage that blends a loan’s interest rate with most of its standard costs, worked out on an example loan. Like every Australian lender, The Capricornian Bank uses $150,000 over 25 years.
Why is the comparison rate higher than the interest rate?
Fees are the usual reason. With fixed loans, the rate the loan reverts to after the fixed term also counts, so a short fixed term can show a wider gap than a longer one. On The Capricornian Bank’s Home Loan Rates page, the comparison rate sits next to each interest rate.
Can the two rates be the same?
Yes. When a loan has few or no standard fees built in, the two figures can sit very close or match. Check The Capricornian Bank’s Home Loan Rates page to see each loan’s gap.
Where can I find The Capricornian Bank’s current home loan fees?
Every current fee is listed in The Capricornian Bank’s Schedule of Loan Fees and Charges, on its Product, Rate and Fee Disclosures page. For fees based on your own loan, generate a Key Facts Sheet, which shows them alongside your repayments.
Is the lowest interest rate always the cheapest loan?
Not always. Fees, the loan size, a fixed loan’s revert rate and loan features all change the real cost. To see the total amount repayable on your own loan amount and term, run a Key Facts Sheet through The Capricornian Bank’s online tool.
Does the comparison rate include government charges?
No. Transfer duty and mortgage registration fees are set by the government, so they sit outside every lender’s comparison rate, including The Capricornian Bank’s. In Queensland, the Queensland Revenue Office sets transfer duty and its concessions.
