Home Loan Types Explained: A Guide to Australian Loan Options
Choosing the right home loan is one of the most important financial decisions most Australians will ever make. With so many different loan types and features to consider, it's easy to feel confused or overwhelmed. This guide breaks down the most common home loan options in Australia—clearly, simply, and with practical examples.
Getting started
Your home loan isn't just a monthly expense—it shapes your financial future. The structure you choose affects how much interest you'll pay, your ability to make extra repayments, and your overall financial flexibility. Understanding your options upfront can save you thousands over time.
Explore Loan Types
First Home Buyer Loans
Access government grants, low deposit options, and special schemes designed for first-time buyers.
Investment Property Loans
Build wealth through property with flexible structures, equity access, and tax-effective solutions.
Refinancing Home Loans
Switch to better rates, unlock equity, or consolidate debt with expert refinancing guidance.
Self-Employed Home Loans
Flexible documentation and specialist lenders for freelancers, contractors, and business owners.
Why Choosing the Right Home Loan Matters
Your home loan isn't just a monthly expense—it shapes your financial future. The structure you choose affects how much interest you'll pay, your ability to make extra repayments, and your overall financial flexibility.
Whether you're:
- Buying your first home
- Refinancing to secure a better deal
- Investing in property
Understanding your options upfront can save you thousands over time.
Example: Emma, a first-home buyer in Newcastle, chose a loan with an offset account and consistently paid extra into it. Over five years, she saved over $12,000 in interest—without changing her day-to-day lifestyle.
Fixed vs Variable Rate Home Loans
Fixed Rate Home Loans
A fixed rate home loan locks in your interest rate—and your repayments—for a set period, usually between 1 and 5 years.
Benefits:
- Predictable monthly repayments
- Protection if interest rates rise
- Easier household budgeting
Considerations:
- Less flexibility (limits on extra repayments)
- You may miss out if rates drop
- Break fees if you refinance during the fixed period
Variable Rate Home Loans
With a variable rate home loan, your interest rate can rise or fall depending on the market.
Benefits:
- Flexibility to make extra repayments
- Access to features like offset accounts and redraw facilities
- Easier to refinance or switch lenders
Considerations:
- Repayments may fluctuate
- Harder to budget for long-term
Fixed loans offer peace of mind when rates are rising. Variable loans are ideal if you value flexibility and want to pay your loan off faster.
Principal and Interest vs Interest-Only Loans
Principal and Interest (P&I) Loans
With a principal and interest loan, you repay both the amount you borrowed (the principal) and the interest from the start.
Best for:
- Owner-occupiers looking to build equity
- Borrowers planning to hold the property long term
Benefits:
- Build equity faster
- Lower total interest paid over the life of the loan
Interest-Only Loans
With an interest-only loan, you pay just the interest for a set period—typically up to 5 years—before switching to principal and interest repayments.
Best for:
- Property investors maximising early cash flow
- Short-term strategies (e.g. renovations, property flipping)
Considerations:
- No equity built during the interest-only phase
- Higher repayments once the interest-only term ends
Warning: Interest-only loans can help manage cash flow in the short term, but be prepared for a jump in repayments once the interest-only period finishes.
Split Loans: The Best of Both Worlds?
A split loan combines fixed and variable components into a single home loan. You might fix part of your loan for stability while keeping the rest variable for flexibility.
Why choose a split loan?
- Hedge against interest rate changes
- Make extra repayments on the variable portion
- Access features like an offset account
Split loans offer a balanced approach if you're unsure about future interest rates or want both certainty and control.
Offset Account Home Loans
An offset account is a transaction account linked to your home loan. The money in this account "offsets" your loan balance, reducing the interest you pay.
How it works:
If your loan is $500,000 and you have $20,000 in your offset account, you'll only pay interest on $480,000.
Benefits:
- Save interest while keeping access to your money
- Helps reduce loan term if used consistently
- Works well for salaried workers and business owners alike
Keep your salary and savings in your offset account and use a credit card for monthly expenses—then pay it off in full each month. This simple strategy can significantly reduce interest over time.
Low Deposit Loans & Lenders Mortgage Insurance (LMI)
What is a Low Deposit Loan?
Most lenders prefer a 20% deposit, but many offer home loans with as little as 5%, particularly for first-home buyers.
What is LMI?
Lenders Mortgage Insurance protects the lender—not you—if you can't repay your loan. It's a one-off premium, usually added to your loan amount, and can cost several thousand dollars.
Ways to avoid LMI:
- Save a 20% deposit
- Use a guarantor (often a parent or close family member)
- Qualify for a government scheme such as the First Home Guarantee
Even if you need to pay LMI, it can be worth it if it gets you into the market sooner—especially if property prices are rising.
First Home Buyer Loan Options
First-home buyers have access to special loan features, concessions, and government schemes.
Common options include:
- First Home Guarantee (as little as 5% deposit, no LMI)
- First Home Owner Grant (FHOG)
- Stamp duty concessions or exemptions
Lenders may also offer tailored first-home buyer loans with flexible repayment features or lower interest rates.
Example: James and Priya used the First Home Guarantee to buy their first home in Brisbane with just a 5% deposit and no LMI—saving over $14,000 upfront.
Investor Loan Structures
Property investors often approach home loans differently than owner-occupiers. The right loan structure can help manage cash flow, tax, and portfolio growth.
Investor strategies often include:
- Interest-only loans to minimise repayments early on
- Offset accounts for flexible access to funds
- Loan splits across multiple properties
- Structuring loans for tax effectiveness
Investment loans are usually assessed more conservatively. Lenders may require higher deposits or charge slightly higher interest rates.
Specialist Loan Types
Construction Loans
Perfect for building a home or undertaking major renovations. Funds are released in stages as the build progresses, helping manage cash flow.
Guarantor Loans
A family member offers equity in their own home to support your loan. This can reduce your deposit requirements and help you avoid LMI.
Bridging Loans
Designed for people buying a new property before selling their current one. They're short-term and often have higher interest rates, so use with caution.
Self-Employed Loans
Tailored for business owners and freelancers. Lenders may assess your income differently and require extra documentation, but these loans can offer flexible structures.
If your situation isn't straightforward, a specialist loan could be the key to moving forward—but it pays to have an expert in your corner.
How to Choose the Right Loan for You
The best home loan is the one that fits your life—not just your numbers. Think about:
- How long you plan to live in the property
- Your current and future income
- Whether you prefer predictability or flexibility
- Features you'll actually use, like an offset account or redraw
Questions to ask yourself:
- Can I afford repayments if rates rise?
- Will I want to make extra repayments?
- Do I need flexibility to refinance or move in a few years?
A good broker will help you answer these questions and match you with a loan that fits—not just what's lowest on paper.
Consider Refinancing
If you already have a home loan, refinancing could help you access better rates, features, or loan structures that better suit your current situation.
Frequently Asked Questions
What is the best type of home loan in Australia?
It depends on your goals. Fixed loans suit those wanting certainty, variable loans suit those wanting flexibility, and split loans offer a mix of both.
Can I get a home loan with a 5% deposit?
Yes—especially if you're a first-home buyer using government schemes. However, you may need to pay LMI.
What's an offset account and is it worth it?
An offset account reduces the interest charged on your loan. It's a smart option if you keep some savings in your account or want to pay your loan off sooner.
Is refinancing worth it?
Often, yes. Refinancing can help you access lower rates, reduce repayments, or unlock helpful features—especially if your circumstances have changed.
Do I need a broker?
Not necessarily, but working with a broker means you get access to multiple lenders and tailored advice—often at no cost to you.
Ready to Find the Right Loan?
Whether you're buying your first home, refinancing, or investing, Stryve is here to help. Our expert brokers compare options from over 40 lenders, explain everything in plain English, and guide you every step of the way.