A guide to various home loan types in Australia

There are 3 main types of home loans in Australia: fixed-rate, variable-rate, and split. Beyond these, there are specialty types for specific situations. The right loan depends on whether you value certainty or flexibility, or have a unique circumstance such as self-employment or building a new home.

Here is an overview of the main home loan types available in Australia.

Lock in a specific interest rate for a fixed term, typically 1–5 years, for predictable repayments and budget certainty.

A fixed rate home loan locks your interest rate for a set period, typically one to five years, so your repayments stay the same regardless of what the RBA does during that time.

When the fixed term ends, the loan automatically reverts to the lender's standard variable rate, known as the revert rate. This revert rate is often higher than the most competitive variable rates available in the market at the time, so it is worth reviewing your options three to six months before your fixed period expires rather than rolling over by default.

Fixed rate loans generally come with restrictions on extra repayments, and offset accounts are rarely available. If you need to exit the loan during the fixed period, break fees may apply. This fee can be substantial depending on how much rates have moved since you fixed your loan.

Your interest rate moves up or down with the market, following RBA changes and lender policy adjustments for maximum flexibility.

A variable rate home loan moves up and down with market conditions. When the RBA cuts the cash rate, lenders typically reduce variable rates, though not always by the full amount, and not always immediately. When the RBA hikes, variable rates usually rise within weeks.

Variable loans are generally quite flexible. Most come with an offset account, unlimited extra repayments, and a redraw facility. There are no break fees if you want to refinance.

Mortgages with variable interest rates are the most common type of mortgage in Australia, especially for owner-occupiers. The rate can change at any time, but it's easier to exit a variable rate loan and refinance to a new mortgage. 

At the time of writing, many lenders are offering variable rates that are lower than their fixed-rate products. However, choosing between a fixed and variable rate home loan isn't just about comparing interest rates. It also depends on your financial circumstances, risk tolerance and the features you value most.

Borrowers who prefer repayment certainty may consider a fixed-rate loan, as repayments generally remain unchanged during the fixed term. Meanwhile, borrowers who value flexibility, expect to make extra repayments or want features such as an offset account or redraw facility may prefer a variable-rate loan. Variable rates can rise or fall over time, which means repayments may also change.

Split your loan between fixed and variable rates. You choose the ratio to balance predictability with flexibility.

A split home loan divides your mortgage into two portions, one fixed and one variable. The fixed portion gives you rate certainty on that share of your debt. The variable portion keeps features like an offset account and unlimited extra repayments available. Both portions are usually managed under one loan account, though they carry separate rate structures and may have separate fees

In addition to choosing between fixed and variable rates, most borrowers face another fundamental question: how do they want to repay the loan? There are two common options: Principal and interest (P&I) loans and interest-only (IO) loans.

A principal and interest loan means each repayment covers both the interest charged for that period and a portion of the original loan balance. Over time your debt reduces, your equity grows, and the interest component of each repayment shrinks.

An interest-only home loan means repayments cover only the interest charge during the interest-only period, which is typically one to five years. Your loan balance does not reduce during this time.

Monthly repayments are lower on an interest-only loan, which is why investors often use this structure to manage cash flow. The trade-off is a higher interest rate, no equity build-up during the IO period, and higher repayments once the interest-only term ends and the loan converts to P&I payments automatically.

Interest-only loans are not inherently better or worse than P&I, they serve a specific purpose. For an investor managing rental yield against loan costs, interest-only can improve short-term cash flow. For an owner-occupier, P&I is almost always the lower-cost structure over time.

It’s worth noting that the 2026 Federal Budget's negative gearing changes, which take effect from 1 July 2027 for established property purchases made after 12 May 2026, change the tax benefits for some investors with interest-only loans. 

If you are an investor considering an interest-only loan on an established property, consider speaking to a broker and an accountant before deciding on loan structure.

Owner-occupier and investment home loans both refer to the amount of money you can borrow to buy a home. However, the difference lies in the property’s purpose. Owner-occupied loans are offered to borrowers who want to purchase a home to live-in. Investment loans are for borrowers who plan to buy a rental property to make an income.

The interest rate on investor loans is often higher than owner-occupier loans. Lenders tend to consider investment loans as riskier, as rental properties may sit vacant from time to time, resulting in inconsistent income for the borrower to repay the mortgage. Many lenders also offer interest-only repayments on investment loans for limited periods of time.

A construction loan is used to finance the building of a new property. It works differently to a standard home loan in one fundamental way: the funds are not released as a lump sum. Instead, they are drawn down in stages as the build progresses.

Construction loans are typically structured around five draw-down stages: base or slab, frame, lock-up, fit-out, and completion. At each stage, the builder submits an invoice and the lender releases the corresponding portion of the loan.

Interest is charged only on the amount drawn down at each stage, not the total approved loan amount. This means repayments are lower during construction than they will be once the full loan is drawn and converts to a standard P&I or variable structure.

For example, on a $600,000 construction loan at 6.5%, a $120,000 drawdown at the slab stage incurs approximately $650 per month in interest. Once all $600,000 is drawn at completion, that becomes approximately $3,250 per month. Planning for this step-up in repayments is an important part of the construction loan decision.

A bridging loan is a short-term financing solution for borrowers who want to buy a new property before their existing one has settled. Rather than requiring you to sell first, a bridging loan covers the gap between the two transactions.

The lender typically combines your existing mortgage and the new purchase into one loan during the bridging period, charging interest on the total. Once your existing property sells, the proceeds are used to pay down the bridging debt, and the remaining balance converts to a standard home loan on the new property.

Bridging periods are usually six to twelve months. If your existing property takes longer to sell than expected, costs can compound quickly. Interest is typically charged at a higher rate than standard variable loans, and on a larger combined debt.

A reverse mortgage allows homeowners aged 60 or older to borrow against the equity in their home without selling it or making regular monthly repayments. Interest accrues on the loan balance and is repaid when the property is eventually sold, typically when the borrower moves into aged care or passes away.

The Australian government operates its own reverse mortgage product, the Home Equity Access Scheme (HEAS), which is available through Services Australia. The HEAS is available at a lower cost than most commercial reverse mortgage products. You can learn more about it by visiting the Services Australia website. 

Reverse mortgages reduce the equity you leave to your estate over time because interest compounds. The longer the loan runs, the larger the debt. Most products include a negative equity protection guarantee, meaning you cannot owe more than the value of your home. But the erosion of equity is a genuine consideration for borrowers who wish to leave an inheritance. Consider independent legal and financial advice before getting into this arrangement. 

An SMSF loan (also called a limited recourse borrowing arrangement, or LRBA) allows a self-managed super fund to borrow money to purchase an investment property. The property is held inside the fund, rental income flows into the fund, and the loan is repaid from fund assets, including member contributions and investment returns.

SMSF loans are significantly more complex than standard home loans. The loan must be structured as a limited recourse borrowing arrangement, which means the lender's recourse in the event of default is limited to the asset purchased, not the fund's other assets. Additionally, there are strict rules governing what can be purchased and how it can be used. It’s advisable to seek qualified advice before considering this arrangement.  

A low documentation home loan is designed for borrowers who cannot provide standard proof of income, typically payslips, group certificates, and two years of individual tax returns. This includes self-employed people, sole traders, contractors, and freelancers.

Low doc lenders typically accept one or more of the following in place of standard income evidence:

• Business Activity Statements (BAS) from the past 12 to 24 months
• An accountant's letter confirming income
• Business bank statements showing cash flow
• A self-declaration of income

Low doc loans typically carry a higher interest rate than standard products and may require a larger deposit. Most mainstream lenders offer them, as do a range of specialist non-bank lenders. Having at least two years of self-employment history and clean, consistent BAS records can help strengthen your low doc application.

A guarantor home loan is a type of mortgage where a family member, usually a parent, provides additional security for your loan using the equity in their own property.

The guarantor doesn't give you cash for a deposit. Instead, they agree to guarantee part of the loan, helping you qualify for a mortgage with a smaller deposit.

The primary benefit is avoiding lenders mortgage insurance (LMI). A first home buyer with a 10% deposit whose parents provide a guarantee over the remaining 10% can purchase at 90% LVR without paying LMI, potentially saving between $12,000 and $18,000 on a $700,000 purchase.

The guarantee can typically be released once the borrower has repaid enough of the loan to bring their LVR below 80%, usually within a few years. Guarantors should obtain independent legal advice before entering into any guarantee arrangement, as their property is at risk if the borrower defaults.

Use this table to compare the key features of each main loan type at a glance.

The interest rate on your home loan matters. So do the features, and in some cases, choosing the right feature set saves more money than chasing the lowest advertised rate.

An offset account is a transaction account linked to your home loan. The balance in the account is offset daily against your loan balance, reducing the interest charged. If your loan balance is $600,000 and your offset account holds $50,000, you are charged interest on $550,000.

Offset accounts are typically available on variable rate loans. They are rarely available on fixed rate products.

A redraw facility allows you to access extra repayments you have made on your loan. If you have paid $20,000 ahead of schedule, you can redraw that amount if you need it.

Redraw is less flexible than an offset account; some lenders charge a redraw fee, set a minimum redraw amount, or may take a few days to process the request. 

The ability to make extra repayments without penalty is a valuable feature on any variable rate loan. For example, paying an additional $200 per month on a $600,000 loan at 5.93% can reduce the loan term by more than three years and save over $40,000 in interest. Most variable loans allow unlimited extra repayments. 

Loan portability allows you to transfer your existing home loan to a new property when you move, rather than refinancing from scratch. This can save time and application costs if you are happy with your current loan and plan to buy again within a few years. Not all lenders offer portability, and conditions apply.

Most lenders offer weekly, fortnightly, or monthly repayment cycles. Fortnightly repayments result in 26 half-payments per year, equivalent to 13 monthly payments rather than 12. On a $600,000 loan at 5.93%, switching from monthly to fortnightly repayments can reduce the loan term by approximately two years and saves over $25,000 in interest, with no change to the total amount paid per fortnight.

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