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Types of home loans - the pros & cons

In Australia, there are plenty of different home loans available to cater to different borrowers. Below, we break down the main types of home loans out there to help you find the one that suits your financial situation.

Variable interest rate

The first thing to consider when looking at home loans is what type of interest rate you’re after. The more popular option in Australia, variable rates, can move up or down based on moves by the Reserve Bank of Australia or simply your lender’s whims. 

Variable rate loans generally provide more flexibility. You’ll be able to take advantage of features like an offset account to help save on interest, as well as switch to another provider without incurring any break costs (as you would with fixed rate loans).

If you’re leaning towards a variable rate home loan, make sure you understand how your repayments will be affected in the event of a rate hike. Punch in your details into a rate change calculator to get an idea.

Fixed interest rate

If a variable rate loan isn’t right for you, you can opt for a fixed rate instead. This locks your interest rate at a set amount for a period of between one to five years (though some lenders offer terms as long as ten years).

The biggest drawcard of a fixed rate loan is that your repayments will remain consistent for the duration of the term. This makes this type of home loan popular for first home buyers and those on a strict budget.

Just be mindful that fixed rates are typically more expensive than variable rates. That’s because lenders consider where the interest rate environment is heading when pricing their fixed rates and try to get ahead of the curve.

Fixed rate loans also tend to be more limited when it comes to features. Not all fixed rate loans come with offset accounts or the ability to make extra repayments, and the ones that do often tack on fees or conditions.

Finally, locking in your rate also makes it harder to switch home loans, as some providers charge an exit fee if you try to break a fixed rate loan early.

Split interest rate

If you’re finding it hard to choose between rates, you can consider splitting your loan. This involves dividing your loan into two (or more) accounts, one with a fixed rate and one with a variable rate.

The size of each portion will be up to you. For example, if you opt for a 60:40 split on a $500,000 home loan, $300,000 would be subject to a fixed rate while $200,000 would be subject to a variable rate.

The portion you lock in won’t be impacted by any changes in the market, while the variable portion will allow you to take advantage of features that aren’t typically available on a fixed rate loan, such as an offset account.

Investment loans

Your loan type will also depend on whether you are an investor or owner occupier. If you intend to live in the property you’ll be considered an owner occupier, whereas if you plan to rent it out or flip it you’ll be considered an investor.

Since investors are considered higher risk, the rates available to them are generally higher. Banks also face pressure from APRA to keep the share of investors on their loan books within a healthy range.

So if you’re an investor with a low deposit (and therefore a higher loan-to-value ratio), you may face a steeper rate than someone purchasing as an owner occupier. To see which loans are investor friendly, browse our investment loans hub.

Interest only loans

One method of bringing down your monthly repayments is opting for an interest only loan, which will only require you to pay down the interest for a set period. 

This is a popular type of home loan for investors, as negative gearing means you may be able to get a refund on the interest when putting through your tax return.

It also bears mentioning that interest only periods don’t last forever (usually up to 7 years) and you will need to start paying down both the interest and principal after the interest only term comes to an end.

Low deposit loans

While lenders prefer you to have a deposit of at least 20% of a property’s value, many won’t rule out lending to borrowers with a much smaller deposit. They just require you to purchase lender’s mortgage insurance (LMI).

This covers the lender, not you, if it turns out you can’t repay the home loan down the track. And depending on the purchase price and the size of your deposit, it can cost you tens of thousands of dollars.

Green home loans

If you’re part of the large number of Australians who want to make their homes more green in order to fight against the climate crisis, a green home loan may be a good choice for you.

A green home loan is a specialised loan for borrowers who want to purchase or build an environmentally friendly home. You’ll need to comply with the lender’s sustainable home criteria before you may qualify for their green home loan.

Guarantor loans

To avoid the cost of lender’s mortgage insurance and improve their chances of being approved for a loan, many first home buyers ask a family member to go guarantor. This means a portion of the guarantor’s home will be used as security for the loan.

While this type of home loan has its advantages as you’ll get into the property market sooner, you and your guarantor should always weigh up the risks involved before going down this path.

Low doc home loans

If you’re self-employed or work as a freelancer, you probably don’t have the same documentation other borrowers are required to provide when applying for a loan.

A low doc home loan lets those who aren’t salaried employees apply for a home loan without the standard paperwork, at a cost in the form of a higher interest rate. Some documentation will still be required (such as a business activity statement and a borrower’s income declaration).

Line of credit loans

Do you have equity in your home? Then you could consider refinancing to a line of credit loan through your current lender or a new provider. This is just like a regular home loan that you repay over a set period of time, but it comes with a revolving loan facility that you can draw on when you please.

While you’ll pay a higher interest rate for this type of loan, you’ll get the flexibility of knowing you can draw on the agreed amount in one lump sum or in small portions as you go.

Line of credit loans are usually taken out by homeowners looking to renovate (which can help add value to the property). Ideally, it shouldn’t be used for impulse purchases, as drawing on a line of credit will only reduce the equity you hold in your home.

Construction loans

Borrowers looking to build their home rather than purchase an established one can take out a construction loan. This differs from a conventional home loan in a few key ways. Firstly, funds are made available in instalments as your home is being built and are paid directly to the builder, not to you.

Secondly, you’ll only pay interest on the loan, at least until the construction process is complete. Interest will only be charged on the amount that has been released by your lender so far. So if you’ve drawn $50,000 on a $300,000 loan, interest will only be charged on that $50,000.

Full feature home loans

If you want a range of flexible features, then you can opt for a home loan with all the bells and whistles. Just keep in mind you’ll usually be charged higher interest rates and fees. Here are some of the common features that come with these full packaged home loans:

Offset account: This is a great feature for bringing down the amount of interest you pay, as any money in the account will be offset against the principal of the loan. So if you have a balance of $30,000 in your offset account and $500,000 owing on your mortgage, you would only pay interest on $470,000.

Extra repayments: Another way to bring down the interest charged is by making additional repayments on top of the minimum amount required by your lender.

Redraw facility: If your circumstances change and you need a little cash, a redraw facility will let you access any extra repayments you’ve made on your home loan.

Home loan top up: If you need money for things like a home reno or new car, a home loan top up will let you borrow additional funds against the equity you’ve built up in your property.

Kick things off by heading to our home loan comparison page, where you’ll be able to filter your search by rate and type. You can also browse the selection below for an idea of what’s currently available.

Home Loan Comparison Table - last updated 15 April 2024

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
  • Mozo Expert Choice Badge
    Express Home Loan

    Owner Occupier, Principal & Interest, LVR <90%

    interest rate
    comparison rate
    Initial monthly repayment
    6.01% p.a. variable
    6.14% p.a.

    Get fast online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.

  • Flex Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR <60%

    interest rate
    comparison rate
    Initial monthly repayment
    5.99% p.a.
    fixed 3 years
    6.37% p.a.

    Competitive Fixed rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process. 40% deposit required.

  • Mozo Expert Choice Badge
    Police Value Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR <90%

    interest rate
    comparison rate
    Initial monthly repayment
    5.79% p.a.
    fixed 3 years
    6.26% p.a.

    Refinance your eligible home loan to get $2,000 cashback (T&Cs apply). Establishment fee applicable. Stay in control of your financial future and lock in some certainty with the Police Bank Fixed Value Home Loan. Only 10% deposit required. No monthly account keeping fee or annual fee to pay. Choose your repayment schedule – weekly, fortnightly or monthly.

  • Neat Home Loan

    Owner Occupier, Principal & Interest, LVR <60%

    interest rate
    comparison rate
    Initial monthly repayment
    6.14% p.a. variable
    6.16% p.a.

    Competitively-priced variable rate loan. Ideal for owner occupiers and investors. No service fees to pay. Make free extra repayments and redraws. Flexible repayment schedule available.

  • Mozo Expert Choice Badge
    Fixed Rate Home Loan

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    5.99% p.a.
    fixed 2 years
    6.24% p.a.

    Secure a low rate and enjoy the certainty of repayments, with the BCU Fixed Rate Home Loan. Save with no ongoing annual fees. Pay up to $25,000 extra during a fixed period (T&Cs apply). Lock in for up to 5 years.

Niko Iliakis
Niko Iliakis
Money writer

Niko Iliakis is a finance journalist at Mozo specialising in home loans, property and interest rate movements. With an eye for facts and figures, Niko deep-dives into topics to help readers understand key info and make more informed financial decisions. He is ASIC RG146 (Tier 2) certified for general advice.

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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