Types of home loans in Australia: How to compare your options

Comparing home loans? Learn the key loan types, how they work and what to check before you choose.

Types of home loans in Australia: How to compare your options

Choosing between home loans types starts with understanding that not every loan works the same way.

A loan that suits a first-home buyer may not suit a refinancer, upgrader or self-employed borrower, even if the rate looks competitive.

If fixed, variable, split, offset, and interest-only options seem similar at first glance. It helps to compare how each loan works in practice rather than focusing on the rate alone. That includes how repayments are structured, how much flexibility the loan offers, and whether it fits your financial situation and plans.

This guide breaks down the main home loan types in plain English so you can compare your options with more confidence.

Feature

Principal and interest loan

Interest-only loan

What you repay

You repay part of the loan balance as well as the interest charged.

You repay only the interest for a set period.

Typical repayment level

Repayments are usually higher at the start because you are reducing the loan balance.

Repayments are usually lower during the interest-only period because the principal is not being repaid.

Loan balance over time

The loan balance reduces over time as repayments are made.

The loan balance usually stays the same during the interest-only period unless extra repayments are allowed and made.

Common use cases

Often used by owner-occupiers and borrowers focused on reducing debt over time.

Can be used by some investors or borrowers with a specific short-term cash flow strategy.

Key trade-offs

Higher repayments upfront, but the debt reduces sooner and total interest costs may be lower over the life of the loan, depending on the product and loan term.

Lower initial repayments, but repayments usually rise when the interest-only period ends and total interest costs may be higher over time.

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