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What is a Comparison Rate?

A comparison rate is displayed next to the interest rate being offered by a lender.

It must be included with any advertised home loan interest rate and includes many of the non-interest costs associated with the loan.

The comparison rate is calculated by adding any fees and charges to the interest rate and then converting that figure to a percentage rate based on a prescribed loan value ($150,000) and repayment term (five years). Therefore, if you are borrowing more, the effective comparison rate could be lower. If you’re borrowing for a shorter term, it may be higher (or it could be a combination of the two). Remember, as well as the interest rate and fees being charged, other factors can affect the actual cost of the loan, such as the loan term and the repayment frequency.

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