Loan types

Types of Home Loans Explained

The main types of home loan are variable, fixed, split, interest only, line of credit, introductory, construction, bridging and low doc loans.

The right choice depends on whether you value flexibility, certainty or lower repayments now, and how long you plan to keep the property.

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Variable rate

Rates move up or down over the life of the loan with the RBA cash rate and lender funding costs. A basic variable loan offers a lower rate with fewer features. Variable home loans.

Pro: repayments fall if rates fall
Pro: extra repayments, redraw and offset are common
Con: repayments rise if rates rise
Con: redraw takes discipline

Fixed rate

The rate is fixed for a set period, usually one to five years, so repayments stay the same. At the end you can refix or move to variable. Fixed rate home loans.

Pro: repayments aren't affected by rate rises
Pro: easier budgeting
Con: no benefit if rates fall
Con: limited extra repayments
Con: break costs if you exit early

Split loan

Part of the loan is fixed and part is variable, in proportions you choose. Split home loans.

Pro: some certainty and some flexibility
Pro: extra repayments on the variable part
Con: the variable part still rises with rates
Con: break costs on the fixed part

Interest only

You repay only the interest for a set period, usually one to five years, then move to principal and interest. Interest only home loans.

Pro: lower repayments during the interest only period
Con: the balance doesn't fall
Con: repayments jump when the period ends

Line of credit

A revolving limit secured by your home that you can draw on and repay at any time. Line of credit home loans.

Pro: flexible access to funds
Pro: income paid in can reduce interest
Con: balances can stay high without discipline
Con: rates are usually higher

Introductory (honeymoon) rate

A discounted rate for the first 6 to 12 months before it reverts to a standard variable rate.

Pro: lower repayments at the start
Con: the rate reverts higher
Con: features may be restricted for the life of the loan

Low doc

For self-employed borrowers who can't provide standard income documents. Low doc home loans.

Pro: less income evidence needed
Con: higher rates and/or a bigger deposit

Other loan types

Frequently asked questions

Which type of home loan is best?

There's no single best type. Variable suits people who want flexibility and offset accounts. Fixed suits people who want certain repayments. Split gives a bit of both. We help you weigh the trade-offs for your situation.

Can I change loan type later?

Usually yes. You can often switch from variable to fixed at any time, though breaking a fixed rate early can attract break costs. Refinancing is another way to change.

What's the difference between principal and interest and interest only?

Principal and interest repayments pay down the loan as well as the interest. Interest only repayments cover just the interest for a set period, so the balance doesn't fall.

Not sure which loan type suits you?

We'll compare the options and explain the trade-offs in plain English.

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