Types of home loans

What are the standard types of home loans?

These typically include variable and fixed rate home loans. 

The type of home loan you choose will depend on your financial goals, lifestyle and how long you plan to own the property. Also ask yourself:

• Am I looking for low monthly repayments? 
• Do I need flexibility in case my income changes?

Understanding what’s important for you will help you select a loan that fits your needs whether you’re buying your first home, an investment property, or refinancing. Let’s learn more about these standard home loan types.

Variable rate loans

With a variable rate loan, your repayments will vary depending on when the interest rate rises and falls. If rates go up, your repayments do as well. If rates go down, your repayments may fall too. You can choose between a basic variable rate or tailored variable rate loan with access to an offset account. An offset account helps offset your loan balance, which can reduce the amount of interest you pay on your loan. This facility is not available with fixed rate loans.

Fixed rate loans

The interest rate on a tailored fixed rate loan is fixed for a set period—usually one to five years. When that period finishes, you may opt for another fixed rate period, or move to a variable rate.

Learn more about the advantages and considerations for fixed vs. variable rate home loans.

Split loans

If you like the certainty of fixed repayments, but also want features like a 100 per cent offset, then a split loan can be worth considering. A split loan is part fixed and part variable, so you get the best of both options.

You will have two smaller loans equalling your total loan amount. For example, you may borrow $300,000 in total but fix $200,000 and keep $100,000 as variable. If interest rates rise, you'll be better off than if you'd taken out a variable rate loan only. If rates fall, you're better off than if you'd gone just with a fixed rate.

Types of home loan repayments

When it comes to home loans, the way you repay can make a difference in how much you pay over time. Home loan repayments aren’t one-size-fits-all; there are a few options with their advantages and considerations. Understanding the differences can help you make the right choice aligned with your budget and goals.

Principal and interest repayments

When you make principal and interest repayments, each payment reduces your principal (the amount you initially borrowed) as well as the interest charges. Over time you start paying off more and more of the principal. The best aspect of a principal and interest loan is that your home is building equity, so you may be able to use that equity to invest.

Interest-only repayments

These repayments cover only the interest portion of your loan, which can offer tax advantages for people with investment properties. At the end of your interest-only period, you’ll need to start paying off principal (unless you apply for another interest-only period). Our loan repayments calculator will show you approximately how much extra interest you’ll pay on an interest-only loan.

Dive into a detailed guide about interest-only versus principal and interest repayments to understand the differences between these repayment types.

Owner occupier vs. residential investor loans

These are two terms you’re likely to come across when selecting a home loan or when reviewing interest rates. 

• The owner occupier loan is for those who plan to live in the home they’re buying. 
• A residential investor loan is for someone who purchases a residential property with the intention of renting it out as an investment. Learn about loan options for investing in property.

Interest rates may differ depending on the loan type you’re choosing. View our current fixed and variable interest rates for both owner occupiers and investors.

Support at every step

We know that the home loan process can be daunting. When the time comes, don’t feel like you need to do it on your own. If you’re ready to get started you can book an appointment online with a home loan expert.