Types of home loans in Australia: a complete guide

There are numerous types of home loans to choose from when financing a home, but which one should you pick? Choosing the right home loan can significantly shape the total cost of your dream home, especially since much of it depends on the interest rates set by lenders. Each home loan also comes with its own unique features, benefits, and drawbacks, making it all the more important to understand how they work so you can select a loan that suits your needs and long-term goals. Are you looking for stable repayments? Flexibility? Or perhaps a loan designed specifically for first-time buyers?

Before making such a big financial decision, remember to do your research, compare options carefully, and weigh both short-term affordability and long-term outcomes. From common to specialised loans, this guide covers all the different types of home loans in Australia, how they work, and which one may fit your lifestyle best.

Disclaimer: This information is for research purposes only and does not constitute financial advice. Please consult qualified financial advisers before making any financial commitment.*

Key Takeaways

• Understanding the different types of home loans helps you choose a product that aligns with your financial goals, lifestyle, and long-term plans.
• Fixed, variable, split, and other common loan structures each offer unique advantages, so comparing their features is vital before deciding on one.
• Specialised home loans such as first-home buyer schemes, investment loans, refinancing options, and green loans can make property ownership more accessible or cost-effective depending on your situation.
• Factors to consider when choosing a home loan include interest rates, repayment capacity, and loan features such as offset or redraw options.
• Taking the time to research, compare lenders, and understand your repayment capacity is key to selecting the right loan for your long-term financial goals.

Understanding home loans in Australia

Home loans are a long-term financial commitment, so understanding how they work would help you find the right lender and prepare better for a big purchase.

What is a home loan and how does it work?

Also known as a mortgage, a home loan is money borrowed from a lender to purchase, construct, or refinance a residential property. You repay this amount over an agreed period, typically 25–30 years, along with interest charged on the outstanding balance. Borrowers receive a lump sum upfront to complete the purchase, then make repayments through regular instalments, which may cover both principal and interest, or interest-only amounts depending on the loan type chosen.

Why choosing the right loan type matters

The loan type you select affects your monthly repayments, interest costs, flexibility, and long-term financial stability. Whether you’re purchasing your first home or refinancing an existing mortgage, matching your needs with the right structure can save you thousands. Don’t know which loan to choose? Don’t worry. With the different types of home loans explained in the following sections, you can make informed decisions that align with your personal goals, be it stability, flexibility, or investment growth.

 

Common types of home loans in Australia

Australia offers a wide range of home loan products, each designed for different financial needs and homeownership stages. Below are the most common types of home loans and what they mean for borrowers.

Fixed-rate home loans

Fixed-rate home loans lock in your interest rate for a set period, usually between one and five years. This provides repayment stability because your instalments stay the same regardless of market changes. Borrowers typically choose to fix their rates when interest rates are low or expected to rise, as this can offer greater certainty and protection against future increases. However, experts caution that timing the market perfectly is almost impossible, which is why the decision should ultimately balance broader rate trends with your personal need for stability and predictable repayments. Another thing to note is that fixed-rate loans tend to be less flexible than other types of home loans, and ending the fixed term early may result in break fees.

Variable-rate home loans

Variable-rate loans feature interest rates that can change based on market conditions. When rates go down, your repayments may decrease; but if they rise, so will your costs. That said, these loans often come with useful features such as offset accounts, redraw options, and additional repayment flexibility, which lets you pay off the loan faster. They are ideal for borrowers who want room to adjust repayments and potentially save on interest. However, they may be less predictable than fixed-rate options, so they require capacity to handle fluctuations.

Split home loans

Split loans combine both fixed and variable rates in a single mortgage, giving borrowers a balance of stability and flexibility. For example, part of your loan may be locked at a fixed rate, while the rest remains variable. This can protect you from rising interest rates while still allowing you to take advantage of features like repayment, redraw, and offset options. Split loans are suitable for homeowners who want the best of both worlds and prefer a balanced approach to risk.

Interest-only home loans

Interest-only loans require borrowers to pay only the interest portion of their loan for a set term, typically 1–5 years. After that, the loan reverts to principal-and-interest repayments, which can be significantly higher. Wondering who these types of home loans are for? They’re popular with investors looking to maximise tax benefits or borrowers seeking lower initial repayments. However, because the principal does not reduce during the interest-only period, long-term costs can be higher. Hence, it’s crucial to plan carefully and consult a proper financial adviser before choosing this option.

Line of credit loans

A line of credit loan gives you access to a pool of funds up to a set limit, allowing you to borrow and repay as needed. It works similarly to a credit card but secured against your property. Many homeowners use it for renovations, investments, or major expenses. While flexible, these types of home loans require discipline as interest can accumulate quickly if balances remain high. As such, they’re best for borrowers with strong budgeting habits or those who want ongoing access to funds.

Low documentation (low-doc) loans

Low-doc home loans are designed for self-employed borrowers who may not have traditional income documentation. Instead of standard payslips, lenders assess and verify your income through alternative proofs and sources such as bank statements or business activity statements (BAS). While these loans offer accessibility, they can come with higher interest rates or stricter lending criteria. They are a good fit for sole traders, freelancers, or small business owners who have stable income but non-traditional financial records.

Construction loans

Building instead of buying? Construction loans help fund the building of a new home or major renovation. Unlike standard mortgages, funds are released in stages (this is called progress payments) as construction milestones are completed. Borrowers typically pay interest only on the amount drawn, which can help manage costs during the build. Once construction is finished, the loan often converts into a standard home loan. These types of home loans are ideal for buyers building on residential land or off-the-plan developments.

Bridging loans

Bridging loans are short-term loans that allow you to purchase a new residential property before selling your existing one. They provide financial breathing room so you can move ahead with your next purchase without rushing the sale of your current home. With these types of home loans, you usually get between 6 and 12 months to sell your current property. That said, while convenient, interest rates may be higher than standard loans, and borrowers must meet specific repayment terms. That’s why bridging loans are best suited for homeowners navigating timing gaps between selling and buying.

 

Specialised home loan categories

Besides standard home loans, there are also several specialised products designed to support different buyer groups such as first-home buyers, investors, and eco-focused homeowners. Below are a few different types of specialised home loans explained:

First home buyer loans and government-backed schemes

First home buyer loans are tailored for those entering the property market for the first time. These loans may come with lower deposits, waived lenders’ mortgage insurance, or access to government support such as the First Home Owner Grant or shared equity initiatives. When purchasing your first home, do look out for these types of home loans for first time buyers as they can significantly reduce upfront costs. What’s more, they help make the property market more accessible for new buyers, particularly in a rising market.

Investment property loans — key differences from owner-occupier loans

Investment loans are designed for buyers purchasing residential property as an investment rather than as an owner-occupier. This is why they may come with different interest rates, lending criteria, or repayment structures to match the risks of rental income and market fluctuations. When it comes to these types of home loans, investors often prefer features like interest-only periods or flexible repayment terms. So if you’re planning on building a diverse property portfolio, remember to choose the right loan that can help you maximise rental returns and long-term capital growth.

Refinancing loans — switching for better rates or terms

Refinancing loans allow borrowers to switch to a new lender or loan product for better rates or more suitable features. This option is popular among homeowners seeking to lower repayments, access equity, or consolidate debts. Though you can refinance your home at any time, it is generally better to wait 12 to 24 months to avoid additional fees and costs. By comparing the types of home loans Australia offers, refinancing can lead to significant savings over time. Just be sure to review exit fees, break costs, and new loan conditions before making the switch.

Green or sustainable home loans — supporting eco-friendly homes

Green home loans reward buyers who choose environmentally friendly homes or energy-efficient upgrades. These types of home loans may offer lower interest rates or cashback incentives for sustainable features such as solar panels, energy ratings, or efficient appliances. Buyers investing in eco-conscious homes, including a few residential properties by Frasers, may find green loans particularly attractive. They’re ideal for homeowners prioritising long-term savings and sustainable living.

Comparing home loan types

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Seeing both the standard and specialised types of home loan at a glance can help you narrow down your options, but do take the time to assess which loan structure best aligns with your budget and lifestyle.

 

Factors to consider when choosing a home loan

When choosing a home loan, do remember to consider factors like repayment capacity, income stability, and whether you may need features like redraw options, offset accounts, or flexible repayments. Your future plans matter too, as renovating, purchasing your first home, investing, or refinancing can influence the loan type that fits you best. All in all, it’s important to understand the different types of home loans in detail so that you can balance your financial goals and long-term affordability.

Ready to finance your dream home? Check out Frasers Property’s residential properties and masterplanned communities designed for comfortable, connected living.

 

*Disclaimer: All opinions, estimates, forecasts, statistics, links to external websites, conclusions, recommendations, and underlying assumptions contained within this webpage are made and expressed by Frasers Property Australia in good faith, in the reasonable belief that they are correct and not misleading as at the date of publication. This content is of a general nature only and does not take into account your personal objectives, financial or taxation situation, or needs. It does not represent financial, taxation, legal, or other professional advice and should not be regarded as such. Information about grants, schemes, and other costs is provided for general guidance only and may change over time. Frasers Property Australia does not make any express or implied representations or warranties that external links or third-party information are accurate, complete, or current. Before acting on any information provided, you should fully consider its appropriateness for your circumstances and, if necessary, seek independent professional advice.
Date of publication: January 2026.