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Why is the comparison rate higher than the interest rate?
Bayley Clarke · Mortgage broker on the road · Last checked 16 October 2026 · 3 min read
The short answer
I hate comparison rates. They are so misleading. Look at the interest rate, then look at the fees, and compare it that way.
A comparison rate tries to fold all the fees and charges into one number, but it does it on a standard example: a $150,000 loan, generally over 25 years. Your loan is almost certainly bigger than that, so the fees end up looking heavier than they really are for you.
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What a comparison rate actually is
Every advertised home loan rate has to come with a comparison rate next to it. The idea is good: take the interest rate, add in the upfront fees, the ongoing fees, the annual package fee, and express the whole lot as a single percentage so you can compare one loan with another.
That's why it's higher than the interest rate. It's the interest rate plus the fees, squashed into one figure. A loan with no fees at all will have a comparison rate very close to its interest rate. A loan with a package fee will sit higher.
Why it misleads
The catch is the example it's built on. The comparison rate is worked out on a $150,000 loan over 25 years. Very few people buying a home today are borrowing $150,000. If you're borrowing $600k, the same annual fee is spread over four times the money, so in percentage terms it matters far less to you than the comparison rate suggests.
So you can end up with a loan that looks worse on comparison rate but costs you less in real dollars, because the interest rate is lower and the fee is small next to your balance. Or the other way around on a small loan. One number trying to cover every situation ends up describing almost nobody's.
How I compare instead
What I prefer to do is look at apples for apples, which is interest rates. Put two products side by side on rate first and work out the difference in dollars on your actual loan size.
Then look at the fees separately. Maybe one has no annual fee. Maybe the other has an offset package, call it $400 a year. Now you can see the trade plainly: is the lower rate on the package loan saving you more than $400 a year on your balance, and are you going to use the offset? That's a real answer, in dollars, for your loan. Don't compare comparison rates.
The honest bit: they're not useless, just blunt
Comparison rates are there for a reason, and they do one useful job: they flag a loan with fees hiding behind a low headline rate. If the comparison rate is miles above the interest rate, that's a sign to go and read the fee schedule.
However, it is what it is. Use it as a warning light, not as the way you choose.
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