Home Loans Australia: Types, Rates and How to Choose the Right One

Types of Home Loans

Australian home loans fall into a handful of core structures. The right one depends on your risk tolerance, cash flow and whether you are buying to live in or invest.

Variable Rate Loans

A variable rate home loan has an interest rate that moves up or down over the life of the loan. When the Reserve Bank of Australia (RBA) changes the cash rate, lenders typically pass on the change, though not always in full or at the same time.

Variable loans are the most popular choice in Australia. They offer flexibility: most allow unlimited extra repayments, come with offset accounts and let you redraw funds without penalty. If rates fall, your repayments drop automatically.

The trade-off is uncertainty. If rates rise, your repayments increase too. This makes budgeting harder during tightening cycles. For borrowers who can absorb some rate movement, variable loans usually offer the best long-term value.

Fixed Rate Loans

A fixed rate loan locks in your interest rate for a set period, typically one to five years. Your repayments stay the same regardless of what happens to the cash rate during that term.

Fixed rates provide certainty. You know exactly what your repayments will be, which makes budgeting straightforward. This can be valuable when rates are low and expected to rise, or when you need predictable cash flow.

The downsides are significant. Most fixed loans restrict extra repayments (typically capping them at $10,000 to $20,000 per year) and do not offer offset accounts. If you break a fixed loan early, you may face break costs that can run into tens of thousands of dollars. If rates fall during your fixed term, you are stuck paying the higher rate.

For a detailed comparison, see our guide on fixed vs variable home loans.

Split Loans

A split loan divides your borrowing into a fixed portion and a variable portion. For example, you might fix 60% of your loan and leave 40% variable.

This gives you partial protection against rate rises while retaining some flexibility for extra repayments and offset on the variable portion. It is a practical middle ground for borrowers who want some certainty without giving up the benefits of a variable loan entirely.

Interest-Only Loans

With an interest-only loan, you pay only the interest on your loan for a set period (usually one to five years). You are not paying down the principal during this time, so your loan balance stays the same.

Interest-only loans are most commonly used by property investors. The lower repayments free up cash flow, and the interest payments are tax-deductible on investment properties. After the interest-only period ends, the loan reverts to principal and interest repayments, which will be higher because the full balance must be repaid over the remaining term.

For owner-occupiers, interest-only is rarely the best choice. You are not building equity, and the total cost of the loan over its full life is substantially higher. Read more about the differences in our interest-only vs principal and interest guide.

Principal and Interest Loans

Principal and interest (P&I) is the standard repayment type for most home loans. Each repayment covers a portion of the loan balance (principal) plus the interest charged for that period.

In the early years, most of your repayment goes toward interest. As the loan balance decreases over time, a larger share of each repayment chips away at the principal. P&I loans cost less in total interest over the life of the loan and are the default structure for owner-occupiers.

Key Features to Compare

Beyond the interest rate, these features can make a material difference to the cost and flexibility of your home loan.

Offset Accounts

An offset account is a transaction account linked to your home loan. The balance in this account is subtracted from your loan balance when calculating interest. If you have a $500,000 loan and $50,000 in offset, you only pay interest on $450,000. Over 30 years, a well-used offset can save you hundreds of thousands in interest. Read our full offset account guide.

Redraw Facilities

Redraw lets you access extra repayments you have made on your loan. It is different from offset because the money sits inside the loan rather than in a separate account. Some lenders restrict how much you can redraw and may charge fees. For a detailed comparison, see our offset vs redraw guide.

Extra Repayments

Making extra repayments is one of the fastest ways to reduce your loan term and total interest paid. Most variable loans allow unlimited extra repayments, while fixed loans often cap them. Even small additional payments, made consistently, compound significantly over time. See our guide to paying off your home loan faster.

Loan Portability

Portability lets you transfer your existing home loan to a new property when you sell and buy. This can save you from paying discharge fees, application fees and potentially break costs on a fixed loan. Not all lenders offer portability, and some charge a fee for it. If you plan to move within the next few years, it is worth checking whether your loan is portable before you sign up.

Rate Lock

Rate lock lets you lock in a fixed rate at the time of application rather than at settlement. This is useful when you expect rates to rise between application and settlement (which can be 4 to 8 weeks). Most lenders charge a fee for rate lock, typically 0.10% to 0.15% of the loan amount.

Repayment Holidays

Some lenders allow you to pause or reduce your repayments for a set period if you are ahead on your loan. This can be helpful during parental leave, career breaks or unexpected financial stress. Conditions vary by lender. You will typically need to have made a certain number of extra repayments before you can access a repayment holiday, and interest continues to accrue during the pause.

How Much Can You Borrow?

Your borrowing capacity depends on your income, expenses, existing debts and the number of dependents you support. Lenders run a serviceability assessment to determine how much they will lend you.

As a general guide, most lenders will allow you to borrow approximately 6 to 8 times your annual gross income. A household earning $150,000 per year might borrow between $900,000 and $1,200,000, depending on their financial position.

Factors that reduce your borrowing power include: high living expenses, existing debts (credit cards, car loans, HECS/HELP), the number of dependents you support, and the type of property you are purchasing (lenders apply different risk weightings to apartments, rural properties and high-density developments).

Your deposit size also matters. Most lenders require a minimum 5% deposit, though 20% is the standard to avoid Lenders Mortgage Insurance. Read our full guide on home loan deposits in Australia.

First Home Buyers

First home buyers in Australia have access to several government schemes and concessions that can significantly reduce upfront costs.

First Home Owner Grant (FHOG)

The FHOG is a one-off payment from the state or territory government for eligible first home buyers. The amount varies by state and typically applies to new builds only. Grants range from $10,000 in NSW and Victoria up to $50,000 in the Northern Territory. For a full state-by-state breakdown, see our FHOG guide.

First Home Guarantee

The First Home Guarantee (formerly the First Home Loan Deposit Scheme) allows eligible first home buyers to purchase a property with as little as a 5% deposit without paying Lenders Mortgage Insurance. The Australian Government guarantees the difference between your deposit and the 20% threshold. Places are limited each financial year.

Stamp Duty Concessions

Most states and territories offer stamp duty concessions or exemptions for first home buyers. In some states, first home buyers pay no stamp duty at all on properties under a certain threshold. The savings can be substantial, often $15,000 to $30,000 or more depending on the purchase price and state.

Lenders Mortgage Insurance (LMI)

If your deposit is less than 20% and you do not qualify for the First Home Guarantee, you will likely need to pay LMI. This is a one-off premium that can cost $8,000 to $30,000 or more depending on your loan size and loan-to-value ratio (LVR). LMI protects the lender, not you. You can avoid it by saving a 20% deposit, using a guarantor, or qualifying for the First Home Guarantee. Read our full LMI guide.

For a complete walkthrough, see our first home buyer guide.

Refinancing Your Home Loan

Refinancing means replacing your current home loan with a new one, usually to get a lower interest rate, access equity, or change your loan structure. It is one of the most effective ways to reduce the cost of your mortgage.

Consider refinancing when: you have had your loan for more than two years (most cashback clawback periods end after two years), your rate is significantly higher than what is available in the market, your financial situation has changed (higher income, less debt), or you want to consolidate other debts into your home loan.

Use our Switch & Save tool below to see how much you could save by refinancing.

Home Loan Tools

Use these free calculators to model your home loan scenario. Each tool gives you real numbers based on live rates from our lender panel.