Comparison rate calculator

Simple and easy comparison rate calculator

Note: The information provided by the calculator is intended to provide illustrative examples based on stated assumptions and your inputs. Calculations are meant as estimates only and it is advised that you consult with a mortgage broker about your specific circumstances. Financial Calculators © VisionAbacus Pty Ltd 2024

Mortgage broker using a calculator.

How does the calculator work?

A comparison rate calculator works by taking into account both the advertised interest rate of a home loan and any associated fees and charges to provide a more accurate picture of the true cost of the loan. Here's how it typically works:

  1. Gathering Data: The calculator collects information about the loan, including the advertised interest rate, any ongoing fees, and any upfront costs such as application or establishment fees.
  2. Calculating Total Cost: It then calculates the total cost of the loan over a specified period, usually a year, by adding the interest charges and fees together.
  3. Adjusting for Fees: Next, the calculator adjusts the total cost to reflect the impact of fees and charges. This adjustment is crucial because fees can significantly affect the overall cost of the loan, especially over the long term.
  4. Comparing Rates: Once the total cost is calculated, the comparison rate is determined. This rate is designed to provide borrowers with a more accurate representation of the true cost of the loan by factoring in both the interest rate and fees.
  5. Displaying Results: Finally, the calculator displays the comparison rate alongside the advertised interest rate, allowing borrowers to make more informed decisions when comparing different loan options.

By using a comparison rate calculator, borrowers can gain a better understanding of the true cost of a home loan and make more informed decisions when choosing the right mortgage for their needs.

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What is a comparison rate, and why is it important when comparing home loans?

A comparison rate combines the advertised interest rate with the fees and charges associated with a home loan to give borrowers a more accurate representation of the total cost. It's important because it allows borrowers to compare loans more effectively and understand the true cost of borrowing.

What fees and charges are included in the comparison rate?

The comparison rate typically includes ongoing fees such as annual fees or account-keeping fees, as well as upfront fees like application or establishment fees. It's important to note that not all fees are included, so borrowers should always check the details provided by the lender.

Why might the comparison rate differ from the advertised interest rate?

The comparison rate may differ from the advertised interest rate due to the inclusion of fees and charges. Even if two loans have the same interest rate, they may have different comparison rates if the associated fees vary.

How can I use the comparison rate to choose the right home loan?

When comparing home loans, it's essential to consider both the advertised interest rate and the comparison rate. While a lower interest rate may seem attractive, a loan with a lower comparison rate may ultimately be more cost-effective once fees are taken into account. Use the comparison rate to compare loans more accurately and choose the one that best suits your financial situation.

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