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Comparison Rate or AAPR

What is a comparison rate or average annual percentage rate (AAPR)

In 2003 the Australian Consumer Credit Code (ACCC) required that all lenders that published interest rates for a product also publish the comparison rate. This is an attempt to inform the consumer of the true cost of a loan. The comparison rate is designed to determine the average annual percentage rate or real interest rate of a loan after taking into account the length of the loan, upfront fees, ongoing annual or monthly fees and exit fees. It also takes into account loans with an introductory period or a fixed rate and later reverts into another rate.

Below are three examples

Loan A
Loan Term
Loan Amount

Variable Interest Rate
Upfront Fees
Ongoing Fees
Exit Fees     
COMPARISON RATE

30 Years
$300,000

6.50%
$0
$0
$0
6.50%
Loan B
Loan Term
Loan Amount

Variable Interest Rate
Upfront Fees
Ongoing Fees
Exit Fees     
COMPARISON RATE

30 Years
$300,000

6.50%
$600
$10 per month
$300
6.58%
Loan C
Loan Term
Loan Amount
Fixed Rate
Variable Interest Rate
Upfront Fees
Ongoing Fees
Exit Fees     
COMPARISON RATE

30 Years
$300,000
5.60%
6.50%
$600
$10 per month
$300
6.35%

Disadvantages of Comparison Rates

To summaries here are the main disadvantages of comparison rates and the very reason why you should contact a mortgage professional to help you select a loan;

- Comparison rates do not take into account other fees such as redraw fees, transaction fees, switching costs, early exit fees and any other associated costs associated. Redraw fees can be upward of $100 per redraw or early exit fees can be thousands of dollars if a borrower decides to exit the loan early.

- They do not take into account other features attached to a loan such as extra- repayments, portability, offset accounts and free redraw that can save you thousands of dollars in interest repayments by using these effectively. A loan my annually cost 0.05% more than another but the borrower may take advantage of an offset account to reduce the loan term and the interest paid.

There are more to loans than just interest rates. To find out more read the following article common mortgage mistakes.

Also, most of our mortgage calculators show comparison rate or real rate in each calculation specific to the loan amount and term.