Choosing a mortgage is a bit like choosing a travel route. The destination (owning a home) is the same, but the path you take can change your repayments, flexibility, and overall cost. With so many types of home loan available in Australia, it pays to understand your options before you apply. In our last blog we highlighted the different grants that are available for first time home buyers in Qld. In this guide, we break down the most common home loan options, explain the key mortgage loan types and help you compare kinds of home loans so you can choose a structure that suits your goals.

Why your home loan type matters

Different home loan types come with different trade-offs. The “best” loan isn’t universal - it depends on things like:

• how stable your income is
• whether you value repayment certainty or flexibility
• how quickly you want to pay down the loan
• whether you’re buying to live in or invest
• whether you expect your circumstances to change (new job, maternity leave, business growth, etc.)

A good home loan broker will help you choose among mortgage loan options based on your situation, not just the interest rate.

1) Variable rate home loans

A variable rate loan has an interest rate that can move up or down over time. When rates change, your repayment amount can change too (unless you’re on a repayment arrangement that absorbs changes in other ways).

Pros

• often more flexible than fixed loans
• usually allow extra repayments
• may include features like redraw and offset accounts

Cons

• repayments can rise if interest rates increase
  budgeting can be less predictable

Variable rates are one of the most common different types of mortgages for owner-occupiers who want flexibility.

2) Fixed rate home loans

A fixed rate loan locks your interest rate for a set period (commonly 1–5 years). Your repayments stay the same during the fixed term.

Pros

• predictable repayments (useful for tight budgets)
• protects you from rate rises during the fixed period

Cons

• may limit extra repayments
• may not include offset/redraw (or may limit them)
• break costs can apply if you change the loan during the fixed term

Fixed loans are a popular option for buyers prioritising certainty in their home loan options.

3) Split rate home loans

A split loan combines a portion fixed and a portion variable. It’s designed for borrowers who want some certainty, but also want flexibility.

Pros

• balances stability and flexibility
• can hedge against rate changes

Cons

• can be more complex to manage
  features vary depending on the lender and split structure

This is one of the most practical mortgage loan types if you can’t decide between fixed and variable.

4) Principal and interest vs interest-only

This isn’t a separate loan “type” so much as a repayment structure — but it matters.

Principal and interest (P&I)

You repay both the loan amount (principal) and the interest.

Best for: most owner-occupiers and anyone focused on paying down debt.

Interest-only (IO)

You repay the interest only for a set period (often 1–5 years). After that, repayments usually increase when the loan reverts to principal and interest.

Best for: some investors or borrowers with a specific strategy (cash flow, renovations, short-term plans).

Because IO repayments can jump later, it’s worth assessing this option carefully with a broker.

5) Offset account home loans

An offset account is a transaction account linked to your home loan. The balance “offsets” your loan principal for interest calculations. For example, if your loan is $600,000 and your offset holds $50,000, you may be charged interest as though your loan were $550,000.

Pros

• can reduce interest and shorten your loan term
• keeps your savings accessible
• can be a smart tool for both owner-occupiers and investors (structure matters)

Cons

• often comes with package fees or a slightly higher rate
• offset rules vary by lender

Offset loans are often one of the most valuable home loan types for borrowers who keep cash savings.

6) Redraw facility home loans

A redraw facility lets you make extra repayments and then access (redraw) those extra funds later, subject to lender rules.

Pros

• flexibility if you may need access to extra repayments
• can reduce interest while the money sits in the loan
  

Cons

• redraw access may be limited (minimum amounts, processing times)
• not always ideal for investors due to potential tax complexity (get advice)

Redraw can be a great feature when comparing mortgage loan options, especially for owner-occupiers.

7) Low-deposit home loans (including LMI and guarantee schemes)

Some borrowers buy with less than a 20% deposit. In many cases, this involves Lenders Mortgage Insurance (LMI) — a premium that protects the lender (not the borrower).

Low-deposit lending can also be supported through eligible government-backed guarantee schemes. These can help some buyers purchase with a smaller deposit and avoid LMI, subject to criteria and lender participation.

This is a key category of kinds of home loans for first home buyers and younger borrowers.

8) Construction home loans

A construction loan is designed for building a home. Funds are usually released in stages (progress payments) as construction milestones are met.

Pros

• interest may be charged only on funds drawn down (during construction)
• structured to match the build process

Cons

• more documentation and monitoring
• timelines and contracts matter

If you’re building, this is one of the most important different types of mortgages to understand early.

9) Bridging loans

A bridging loan helps you buy a new property before selling your current one, “bridging” the gap between purchase and sale.

Pros

• can help you secure a new home without rushing the sale
• reduces the need for temporary renting

Cons

• usually higher interest rates
• short-term and can be complex
• requires a clear exit strategy

Bridging loans can be excellent in the right scenario, but they’re not for everyone.

10) Guarantor home loans (family guarantee)

A guarantor loan can help eligible buyers reduce or avoid LMI by using a family member’s property as additional security.

Pros

• can enter the market sooner
• may reduce deposit requirements and LMI

Cons

• financial risk for the guarantor
• legal and family considerations matter

This is one of the most powerful home loan options for first home buyers with family support.

How to choose the right type of home loan

When comparing home loan types and mortgage loan options, consider:

• Repayment certainty (fixed vs variable vs split)
• Cash flow needs (interest-only vs principal and interest)
• Flexibility features (offset and redraw)
• Time horizon (long-term hold vs short-term upgrade)
• Deposit size (LMI vs low-deposit options)
• Future plans (children, career change, self-employment, renovations)
  
  

How Sapphire Finance helps you compare home loan options

Choosing between types of home loan isn’t just about getting “approved”. It’s about getting a loan structure that fits your life.

At Sapphire Finance, we help you:

• compare lenders and mortgage loan types side by side
• choose features that actually match your habits (offset vs redraw, etc.)
• structure your loan for flexibility now and cost-efficiency long term
• understand trade-offs clearly before you commit
  
  

FAQs

What is the most common type of home loan in Australia?
Variable rate home loans are common, particularly with offset and redraw features, but the best choice depends on your goals and how you manage money.

Is a fixed or variable home loan better?
Fixed loans offer repayment certainty; variable loans often offer more flexibility. Many borrowers choose a split loan to get a bit of both.

What’s the difference between an offset account and redraw?
Both can reduce interest, but an offset account keeps your savings separate and accessible, while redraw involves accessing extra repayments made into the loan (with lender conditions).

Are interest-only home loans only for investors?
They’re more common for investors, but some owner-occupiers use them strategically. It’s important to plan for higher repayments when the interest-only period ends.

How do I choose between different types of mortgages?
Start with your deposit, your income stability, and whether you want certainty or flexibility. A broker can help match loan features to your priorities and shortlist suitable lenders.

Ready to choose the right home loan with confidence?

At Sapphire Finance, we’ll help you compare the different types of home loan, shortlist the best mortgage loan options for your goals and guide you from pre-approval through to settlement, without the confusion or guesswork.

Get in touch today to book a free, no-obligation chat with a broker. We’ll review your situation, explain your best next steps, and help you secure a home loan structure that genuinely fits your budget and lifestyle.

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