Australian home loan types



Jan 13, 2012( 3 min read )

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Securing finance for a new home is one of life’s biggest hurdles and to find the best Australian home loan you have to do your research. Home loan features are unique, as are borrowers requirements, so it’s important to assess the different types of home loans, lenders, rates and features to find the best fit for you.  

To find the best home loan, work out the fees and charges associated with the loan, and whether you wish to have a ‘fixed’ or ‘variable’ interest rate. Likewise, you may prefer to make ‘interest-only’ or ‘principal and interest’ (P&I) repayments.

What’s the difference between fixed, variable, principal and interest-only? While it comes down to personal preference, financial circumstances and current interest rates, there are a few things that stand each home loan type apart.

Fixed rate loan

With a fixed rate loan, the interest rate is set in concrete for an agreed term, usually from 1 to 5 years. While this scenario provides homeowners with a sense of fiscal security, there are restrictions with a fixed loan. For example, your lender may set limits on how many additional repayments you can make, which may prove less appealing if you’re aiming to clear your home loan debts sooner rather than later. Likewise, if interest rates head south, you’ll be stuck paying a higher interest rate.

Variable rate loan

With a variable rate loan, the interest rate fluctuates up and down in tandem with a host of national and international factors, such as changes to official interest rates. Variable rate loans usually offer the flexibility of making extra repayments, which is useful if you plan to pay off the home loan sooner. Paying off your home loan sooner could save you lots of money on interest also.

Principal and Interest (P&I) repayments

With a P&I option, the repayments will be higher than with an interest-only loan, as you are paying the interest liability and the capital. This is a strategy worth considering if you plan to own your home outright.

Interest-only repayments

If you choose to make interest-only payments, you won’t chip away at the capital. As a consequence, repayments are lower than with a P&I loan. Generally speaking, interest only repayments are designed for investors, who aim to profit from the income and capital growth generated by a well-located, quality rental property.

Shopping around online is a great way to help you secure a home loan that is right for you. Compare some of Australia’s best home loans and estimate your monthly repayments with the home loan repayment calculator.


^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

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