You may be confused by comparison rates for home loans, but it’s an important topic for borrowers to understand. Before you go shopping for a home loan, here’s what you need to know about comparison rates.

What’s a home loan comparison rate?

The first essential thing to understand is, what exactly is a comparison rate for a home loan? In simple terms, it’s one indicator of the true cost of a home loan per year. It takes into consideration the interest rate of the loan, as well as various applicable fees and charges.

Lenders legally have to show the comparison rate, alongside their interest rate.

A word of warning on the ‘comparison rate warning’

When looking at lenders’ websites, you may have come across something called a ‘comparison rate warning’. While home loan comparison rates are designed to give borrowers a more accurate portrayal of the rate they’ll pay each year, no two loans are the same. Each lender calculates their comparison rate using the same example loan amount and term length. That’s what the ‘warning’ is about – a reminder that the example comparison rate is just that, an example.

For most lenders (including Suncorp Bank), that’s based on a home loan of $150,000 over 25 years.

How do lenders calculate comparison rates?

Calculating comparison rates is no simple task. Lenders must follow the formula set out in the National Credit Code (NCC) legislation, using the:

• loan amount
   
• loan type
   
• repayment frequency
   
• interest rate
   
• applicable upfront and ongoing fees (eg account fees, establishment fees, etc), and
   
• settlement fee.

If you want to figure out the comparison rate for a home loan, you may want to look for a trustworthy online calculator tool.

What's the difference between comparison rates and interest rates?

When shopping among lenders, many people focus on interest rates. It’s usually what comparison websites focus on, too. The interest rate shows you how much interest you’ll pay each year. Unlike a comparison rate, interest rates don’t factor in additional fees and charges, so they may not be a true indicator of your loan repayment costs.

Why should I care about comparison rates?

Getting a home loan can be a big commitment. While it’s incredibly important to carefully read through relevant product information documents and forms, sometimes it can be difficult to navigate the various fees and charges involved.

This is where comparison rates can come in handy. They give you a more realistic view of what you’ll likely be paying on your home loan. That means it can be an important factor to consider when choosing the right home loan for you.

You should also note that the comparison rate is correct only for the examples given (usually a $150,000 home loan over a 25-year term) and it may not include all fees and charges. Different loan terms, fees or actual loan amounts might result in a different comparison rate. 

Another way to navigate what can be a big decision is by talking to a professional. Suncorp Bank’s home lending team can help answer all your questions and all consultations are 100% obligation-free.

Talk to a home loan expert

Published 1 March 2022