Types of Home Loans in Australia: Compare the Structure, Not the Label

A home loan is not defined by one label. A borrower might have a variable principal-and-interest loan with redraw, a fixed interest-only loan without an offset, or a split facility combining several features. Treating these as a single list makes comparison harder than it needs to be.

This guide explains the choices without recommending a product. Rates, fees, eligibility and feature rules depend on the lender and the applicant. Use the lender's current credit proposal and loan contract for the decision, not a generic description.

Start with three separate decisions

1. Rate structure: fixed, variable or a split between the two.
2. Repayment structure: principal-and-interest or, where available, interest-only for a set period.
3. Features: offset, redraw, extra repayments, portability and other lender-specific options.

ASIC's Moneysmart home-loan comparison guide says to compare the interest rate, comparison rate, repayments, upfront and ongoing fees, loan term and features. The comparison rate is useful, but it does not capture every feature or every possible fee, so read the product documents as well.

Fixed, variable and split rates

Variable rate

A variable rate can change during the loan. Repayments may therefore rise or fall, subject to the loan terms. The Reserve Bank explains that the cash rate influences other interest rates but is not their only determinant; lender funding costs, competition and risk pricing also matter. A cash-rate move is not a promise that a particular lender will change a home-loan rate by the same amount or at the same time. See the RBA's monetary-policy transmission explainer.

Fixed rate

A fixed rate is set for an agreed period, after which the loan generally moves to a variable rate unless a new arrangement is made. It can make repayments more predictable during the fixed period, but restrictions may apply to extra repayments, redraw and early exit. Ask for the break-cost method and feature limits in writing; a future break cost cannot be known from today's rate alone.

Split loan

A split loan allocates part of the balance to a fixed rate and part to a variable rate. Each split has its own terms. Check which split receives extra repayments, whether an offset is linked to one or both, and how fees are charged. A split does not remove rate risk or fixed-rate restrictions; it divides them.

Principal-and-interest and interest-only

Principal-and-interest

Each scheduled repayment includes interest and an amount that reduces the principal. The balance should fall when repayments are made as required, although the pace depends on the rate, term and payment schedule.

Interest-only

During an interest-only period, scheduled repayments cover interest but do not reduce the principal. When that period ends, repayments generally increase because the principal must then be repaid over the remaining term. ASIC's interest-only home-loan guide and calculator recommends checking both phases rather than comparing only the initial repayment.

Offset and redraw are different

An offset is a separate transaction account linked to an eligible loan. Its balance reduces the loan balance used to calculate interest. Redraw is access, subject to the loan terms, to eligible extra repayments already made into the loan. ASIC's offset-account guidance explains the distinction and warns borrowers to check that an offset is correctly linked.

• Compare any package fee or higher rate against the likely benefit of an offset.
• Check whether the offset is full or partial and which split it is linked to.
• Read redraw limits, fees, minimum amounts and access rules in the loan terms.
• Keep statements showing the link and the interest calculation.

Moving money through redraw can also have tax consequences where a property later earns income. That question needs transaction-specific tax advice and clean records; it should not be decided from a product label.

Special-purpose loan structures

Construction, bridging and guarantor facilities solve different problems and have additional conditions. A construction facility may release funds in stages. Bridging finance covers the interval between buying and selling. A guarantee can expose the guarantor's assets to loss if the borrower defaults. These are product mechanics, not indicators that the product is suitable or that an application will be approved.

Read our separate bridging-finance guide for the questions to ask about peak debt and sale assumptions. A borrower or guarantor should obtain independent legal and financial guidance before accepting obligations they do not fully understand.

A defensible comparison method

1. Set the same loan amount, term and repayment type for every quote.
2. Record the advertised rate, comparison rate and the date each quote was obtained.
3. List every upfront, ongoing, discharge, switching and package fee shown in the documents.
4. Model repayments at the quoted rate and at higher rates; do not use borrowing capacity as a spending target.
5. Write down the exact fixed-rate, extra-repayment, offset and redraw rules.
6. Check whether discounts expire and what rate applies after any fixed or introductory period.
7. Confirm that the loan security, occupancy and purpose are recorded correctly.

If using a broker, ask which lenders are on the broker's panel and why the recommended option fits the stated objectives. Moneysmart notes that brokers must act in the consumer's best interests when suggesting a loan, but a broker's panel is not necessarily the whole market. See using a mortgage broker.

Related resources

• Home-loan pre-approval guide
• Mortgage repayment calculator
• Lenders mortgage insurance explained
• Property holding-cost checklist

General information only, reviewed 24 August 2026. This is not personal credit, financial, legal or tax advice. Loan approval, pricing and features are determined by the lender under its current criteria and the applicant's circumstances.