Types of Home Loans

A standard variable rate home loan means that the rate of interest that is applied to your loan and your repayments is based on the interest rate that is decided by your lender – which may change if the lender chooses to do so. Often lenders change their interest rates to reflect the official rate that is set by the Reserve Bank of Australia. The benefit here is that if your lender reduces their interest rate your minimum repayments will also decrease, so you won’t have to pay as much. But, on the other side of the coin, if your lender chooses to increase their interest rate, your minimum repayments will also increase. Being aware of how interest rates are trending can help you plan your finances accordingly.

A fixed-rate loan allows you to lock-in the interest rate for the first one to five years of the loan. This means that your repayments will remain the same during this time regardless of interest rate changes. These types of mortgages are particularly beneficial as they can save you from increased repayments if interest rates rise. By the same token, however, you won’t be entitled to reduced repayments during the fixed period should interest rates fall.

A split loan lets you enjoy a bit of both worlds. You lock part of your loan at a fixed rate for repayment certainty, while the rest stays on a variable rate so you can keep flexible features like an offset account and unlimited extra repayments (policy permitting). If rates rise, the fixed portion cushions your budget; if rates fall, the variable side can pass on some savings. You choose the split—50/50, 70/30, or any mix your lender allows—and you can often target the variable portion to hold your offset balance for day‑to‑day cash flow. Be mindful that fixed portions can have break costs if you refinance or repay early, and not all features are available on the fixed side.

An interest-only loan allows you to pay back just the interest for up to the first 5 years of the loan. At the end of the interest-only period, however, you’ll then be required to pay back both the principal and the interest as part of your regular repayments. The benefit of these types of home loans is that because you’re only required to pay the interest and none of the principal, your repayments end up being lower during this period.

A construction loan is specifically targeted towards buyers who want to build their own home. It allows you to progressively draw from the loan so you can pay your builder as they complete each stage of construction. Generally, there are 5 or 6 stages of construction. This means you would draw down from your loan 5-6 times to pay your builder each time they finish a stage. 

The major benefit of a construction loan is that the construction period is considered an interest-only period, where you only have to pay interest on the parts of the loan that you drew down. This, of course, can end up saving you a lot in repayments. It’s only once the build is complete that you will start paying interest and principal.

A low doc loan is designed for home buyers who may not be able to provide traditional proof of consistent income such as pay slips. While these types of home loans can be ideal for self-employed individuals, they typically require a larger deposit and the need to pay higher interest rates.

A bridging loan is designed for the in‑between time when you’re buying your next home before selling your current one. The lender effectively covers both properties for a short period—your “peak debt”—and then, when your existing home sells, the proceeds reduce the loan back to your “end debt” on the new property.

During the bridge, repayments may be interest‑only and sometimes capitalised (added to the loan), which helps with cash flow but increases the balance if the sale takes longer.

Lenders set maximum bridging terms and may apply conservative assumptions about your current home’s sale price. It’s important to understand holding costs during the bridge and to have a realistic sale strategy. For upgraders building new, bridging can help you secure the right block and start construction without needing to rent between homes—provided the timing and numbers stack up.