What a crazy week it was on so many fronts.
After Trump slapped massive new tariffs on Chinese imports, suddenly everyone started wondering: will this shake Australia’s economy too? Now journalists and analysts alike have been speculating whether a rate cut might sneak into the conversation sooner than expected, perhaps even out of cycle prior to the May RBA meeting.
On Wednesday, all the talk was about 5 interest rate cuts this year with a big 0.5% cut in the very near future, then come Thursday, with Trump’s backflip, that initial imminent rate cure seems off the tables.
It’s been many years since we last had such a rollercoaster week. If there is any silver lining to it all, it will be lower interest rates, but at what cost?
In this week’s newsletter, we unpack what a comparison rate is and why it may not be the most useful reference point when considering the cost of a loan.
A comparison rate shows the true cost of a loan by combining the interest rate with key fees. It helps you compare loans from different lenders more accurately.
Comparison rate vs interest rate
An interest rate is just the cost of borrowing. A comparison rate includes the interest rate plus common fees, giving a clearer picture of the loan’s real cost. The interest rate is the percentage charged annually by a lender on the amount you borrow to buy a home.
Why use a comparison rate?
Interest rates don’t include fees. A comparison rate gives a better idea of total costs, usually appearing higher due to added fees like:
- Application
- Establishment
- Account keeping
- Discharge fees
If the comparison rate is much higher than the interest rate, the loan likely carries high ongoing costs. A small difference suggests minimal fees.
Why it matters
A low interest rate might not be best if the comparison rate is significantly higher. Look at loan features too—like whether it’s principal and interest or interest-only—to see what suits your needs.
How is it calculated?
All Australian lenders use a government-regulated formula based on a $150,000 loan over 25 years. It’s meant to offer transparency but won’t reflect your exact loan details.
Use with caution
Comparison rates are a guide. Your loan amount and term may differ, so use them as a starting point—not the only factor in your decision.
Included in comparison rate:
- Interest rate
- Application, settlement, account, and discharge fees
- Not included:
- Optional feature fees (e.g., offset/redraw)
- Government charges
- Late fees
- Lenders Mortgage Insurance (LMI)
Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
