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Interest rates - real versus comparison rates

Hi all, just wondering if anyone can shed some light on what the comparison rate means? The reason I ask is that I saw the HSBC ad here, and they have an interest rate and also a comparison rate...

Not sure what this is all about...

Can anyone help?

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Permalink Reply by Vonny on September 2, 2008 at 3:47pm

Not sure about the textbook definition but the comparison rate is the advertised rate plus all the fees and charges u need to pay in order to get the loan or maintain it. It doesn't include exiting fees however. All mortgage products need to have a comparison rate stated somewhere.

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Permalink Reply by Tina on September 2, 2008 at 7:18pm

OK, that makes sense. But how is it determined? Do the banks determine it themselves, randomly choosing a "comparison rate"? Or is there a formula that is followed (much more likely)?

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Permalink Reply by Matthew Reader on September 2, 2008 at 10:48pm

There's a formula that is used that was devised by CANNEX.

You can use this calculator on St George's site. Most of the banks have it on their website somewhere:

Comparison rate calculator