Every homebuyer has different needs and goals, whether it’s based on their budget, long-term plans, or the type of property they want. Lenders offer a variety of home loan options, like fixed-rate, variable-rate, and interest-only loans, to meet these needs. Whether you’re buying your first home, investing or building, there’s a loan option to suit you.
Home loans are typically categorised by their interest rates, features and specific uses for them. So let’s break it down and explore what each type has to offer.
Types Of Home Loans
- Variable-Rate Home Loans
- Fixed-Rate Home Loans
- Principal-and-Interest Loans
- Interest-Only Loans
- Split-Rate Home Loans
- Offset Home Loans
- Construction Home Loans
- Redraw Facility Loans
- Line of Credit Loans
- Bridging Loans
- Investment Home Loans
Variable-Rate Home Loans
Variable-rate home loans are the most common type of mortgage in Australia. With these loans, the interest rate fluctuates with market conditions, which means your repayments can increase or decrease over time. If you’re searching for flexibility, go with this option. You can make additional payments on a variable-rate loan without being penalised, which helps you pay off the loan more quickly and reduces your interest expenses. You have more control over your money with these loans because they frequently include features like offset accounts and redraw options. Find out more about home loans with variable rates.
Fixed-Rate Home Loans
Fixed-rate home loans provide a set interest rate for a specific period, usually between one and five years. Your repayments will remain consistent, offering stability and peace of mind during the fixed-rate term. For those who like stability and wish to protect themselves from future increases in interest rates, a fixed-rate loan could be the ideal option. This steadiness can ease the stress associated with variable repayments and facilitate budgeting. Fixed-rate loans, however, may prohibit making additional payments or paying off the loan early. Find out more about home loans with fixed rates.
Principal-And-Interest Loans
Principal-and-interest loans involve regular repayments that cover both the loan amount (principal) and the interest. This type of loan is the standard option for many borrowers, as it gradually reduces your debt over time. If you want to regularly reduce your loan debt while maintaining a predictable repayment schedule, this loan is perfect for you. The interest you pay slowly drops, along with the principal. Find out more about principal-and-interest loans.
Interest-Only Loans
With interest-only loans, you pay just the interest for a set period (usually up to five years), after which your repayments will include both principal and interest. This results in lower payments during the interest-only period. Homebuyers who require reduced short-term payments or investors looking to maximise cashflow are fond of these loans. Note, however, that the total interest you will pay for the loan will increase because you aren’t making principal payments during the interest-only term. Find out more about loans with only interest.
Split-Rate Home Loans
Split-rate home loans allow you to divide your loan between a fixed rate and a variable rate. This means part of your loan enjoys the stability of a fixed rate, while the other part takes advantage of the flexibility of a variable rate.
If you want a good mix of security and flexibility, this is an excellent solution. On one part of your loan, you can take advantage of fixed repayments, while on the other, you can benefit from possible rate reductions, and if rates go up, you’ll face higher repayments only on part of the loan. Find out more about home loans with split rates.
Offset Home Loans
These are home loans that are linked to an offset transaction account, where the balance in the account offsets the amount owed on your loan. This reduces the interest you pay, as interest is calculated on the remaining loan amount minus the offset account balance. We recommend this type of loan to reduce interest costs while maintaining easy access to your savings. It’s a smart way to use your everyday banking to your advantage. Learn more about Offset Home Loans.
Construction Home Loans
Construction loans provide financing for building a new home or undertaking major renovations. Funds are released progressively, aligning with the completion of each construction stage, and often require only interest-only repayments during the construction phase. This type of loan is suitable if you’re looking to build a new home or heavily renovate an existing one. It provides the flexibility to manage your budget throughout the building process. Learn more about Construction Home Loans.
Redraw Facility Loans
Loans with a redraw facility allow you to access extra repayments you’ve made on your mortgage. This provides a way to borrow back money you’ve paid off, giving you financial flexibility when needed. This is a fantastic alternative if you think you’ll need access to money later on for personal needs, emergencies or house improvements. Learn more about Redraw Facility Loans.
Line of Credit Loans
Line of credit loans allow you to borrow up to a specified limit using the equity in your property, similar to how a credit card works. You can draw on the funds as needed and pay interest only on the amount you use. This type of loan is ideal for managing ongoing expenses, funding home renovations or investing. It provides flexibility and easy access to funds without having to refinance. Learn more about Line of Credit Loans.
Bridging Loans
Bridging loans offer short-term financing for buying a new home while you wait to sell your current one. These loans cover the gap between purchasing a new property and receiving proceeds from selling your existing one. Bridging loans are useful if you need to move quickly on a new property purchase but haven’t yet sold your current home. They can reduce the stress of having to time your home sale and purchase perfectly. Learn more about Bridging Loans.
Investment Home Loans
Investment home loans are designed specifically for borrowers looking to purchase property as an investment rather than a primary residence. These loans allow you to invest in real estate to generate rental income or capital appreciation. They can be adjusted to fit your unique investment strategy and offer flexible terms to help you maximise returns. Learn more about Investment Home Loans.
Niche-based Home Loan Types
There are specialised home loan options for more specific needs:
- Low-Deposit Home Loans
- Low-Doc Home Loans
- Self-Employed Loans
- Unusual Employment Loans
- SMSF Home Loans
- Non-Resident Loans
- Expat Home Loans
- Guarantor Loans
- Bad Credit Home Loans
Low-Deposit Home Loans
Low-deposit home loans allow you to purchase a property with a smaller deposit, sometimes as low as 5% of the property value. This type of loan is ideal for first-time buyers or those who have difficulty saving a large deposit. However, because you’re borrowing a larger proportion of the property’s value, you may need to pay Lenders Mortgage Insurance (LMI) to protect the lender in case of default. Learn more about Low-Deposit Home Loans.
Low-Doc Home Loans
Low-doc home loans are designed for self-employed individuals or those who can’t provide traditional income documentation. Instead of tax returns or payslips, you can use documents like bank statements, BAS or accountant letters. Although these loans often come with higher interest rates and require a larger deposit, they also offer flexible terms tailored to non-conventional borrowers. Learn more about Low-Doc Home Loans.
Self-Employed Loans
These loans are designed to meet the unique income verification needs of self-employed individuals, who may not have regular pay slips but have a steady income. They offer flexible documentation and loan structures. Learn more about Self-Employed Loans.
Unusual Employment Loans
Unusual employment loans are designed for borrowers who don’t meet standard lending criteria due to unconventional income sources. These loans allow you to own a home, even if traditional lenders have turned you down. They can be tailored to fit your unique situation and offer flexible terms to help you manage repayments. Learn more about Unusual Employment Loans.
SMSF Home Loans
Designed for individuals looking to invest in property through their Self-Managed Super Fund (SMSF), these loans allow you to purchase residential or commercial properties as part of your retirement strategy. Learn more about SMSF Home Loans.
Non-Resident Loans
Non-resident loans are designed for foreign citizens looking to buy property in Australia. Whether you’re an Australian living overseas or a foreign investor, these loans can help you. With flexible options and competitive rates, non-resident loans make property ownership more accessible, even if you’re not living in the country. Learn more about Non-resident Loans.
Expat Home Loans
These loans are tailored for Australian expats living abroad who want to buy property in Australia. These loans accommodate the unique challenges of earning foreign income and navigating property purchases from overseas. Learn more about Expat Home Loans.
Guarantor Loans
Guarantor home loans help those struggling to save a deposit by allowing a family member, typically a parent, use their property as security. This can eliminate the need for a large deposit and allow you to avoid paying Lenders Mortgage Insurance (LMI). Learn more about Guarantor Home Loans.
Bad-Credit Home Loans
A bad-credit home loan is designed for borrowers who have experienced financial difficulties in the past. Even if you have defaults, court judgements, or past bankruptcies, there are lenders that can help. With the right guidance, it’s still possible to secure a loan and get closer to owning your home. These loans allow you to borrow up to 95% of the property’s value, depending on your circumstances. Learn more about Bad-Credit Home Loans.
What Home Loans Are Suitable For First-Home Buyers?
- Variable Rate Loans
- Fixed Rate Loans
- Low Deposit Loans
- Guarantor Loans
- Introductory Rate Loans
Each of these loan types offers distinct features that can benefit first-home buyers in various ways. Flexible interest rates can be beneficial for those who want the potential advantage of fluctuating rates and the option to make extra payments. Loans with low initial costs, such as reduced rates or fees in the early stages, can help ease the financial burden and save money upfront. Family assistance loans, which allow the use of a family member’s support as security, are also helpful for buyers with little or no deposit, enabling them to secure a loan without incurring extra costs. Consistent repayments, through fixed-rate loans, can offer peace of mind by providing certainty in budgeting, as the repayment amounts won’t change for a certain period. Lastly, low deposit options may be available for buyers who haven’t saved a large deposit, allowing them to enter the property market with a smaller upfront amount.
What Home Loans Are Suitable For Homeowners?
- Refinancing Loans
- Home Equity Loans
- Offset Loans
- Split Loans
These loan options can provide different benefits to homeowners depending on their goals and financial situation. For homeowners looking to optimise their mortgage or access home equity, stable repayment loans can be advantageous, providing consistent repayment amounts for a set period, which helps with budgeting and financial planning. Revisiting loan terms through refinancing can allow homeowners to secure better deals or shorten the loan duration, giving them more control over their finances. Additionally, accessing home equity can be a useful option for homeowners needing funds for renovations, emergencies, or other expenses.
What Home Loans Are Suitable For Investors?
- Interest-Only Loans
- Line of Credit Loans
- Offset Loans
- SMSF (Self-Managed Super Fund) Loans
- Redraw Facility Loans
Each of these loans provides specific benefits designed to help property investors maximise their returns. Loans with lower initial repayments, such as interest-only loans, can reduce upfront costs, giving investors more flexibility to manage cash flow or reinvest savings. Tailored investment features like offset accounts, redraw options, and interest-only periods can further assist investors in managing their finances efficiently and increasing returns from rental income. Additionally, some loans allow investors to use their superannuation to purchase property, providing potential tax benefits and the opportunity to diversify their retirement portfolio with real estate investments.
How To Choose The Right Type Of Mortgage Loan For You
Choosing the right mortgage is a key decision that can have a lasting impact on your financial future. Start by considering your needs – do you prefer the security of fixed repayments, or are you open to the potential savings of a variable interest rate? Beyond these choices, you’ll want to think about the loan size, the total interest you’ll be paying over time, and any extra features that could benefit you, like an offset account to reduce interest or the ability to make additional repayments.
It’s also important to take into account the fees and costs associated with each loan. Application fees, valuation fees, and even annual maintenance fees can add up. Some lenders offer options to reduce or avoid costs like Lenders Mortgage Insurance (LMI) if your deposit is smaller than 20%, but these options might not always be the best financial decision for you in the long run.
Your personal situation plays a big role. Are you a first-home buyer, an investor or looking to refinance? Each of these scenarios comes with its own set of loan types and eligibility criteria. There are loans for low-deposit borrowers, self-employed applicants, and even for those with impaired credit histories.
With so many factors to weigh, consulting a mortgage broker is one of the best ways to make sure you’re getting a mortgage tailored to your needs. A broker can help assess your situation, compare products from various lenders, and guide you toward the loan that fits your financial objectives while ensuring you get the best possible deal.
Talk With An Expert Mortgage Broker Today
If you’re still unsure which type of home loan suits you best, don’t worry. We’ve got your back. Connect with one of our experienced mortgage brokers for personalised advice. We’ll help you navigate the options, answer your questions, and guide you towards the best decision for your financial future.