Home Loan — Types, Rates, Eligibility & Comparison

Updated 12 Mar 2026Content was accurate at the time of publication

What is a home loan?

A home loan (mortgage) is a secured loan used to buy property or fund major home-related projects. A lender—typically a bank, credit union or non-bank lender—advances the loan amount and takes a mortgage or charge over the property as security. You repay the loan over an agreed term with interest; the repayment schedule depends on the loan type (variable, fixed, split, interest-only, principal & interest). Mortgage brokers can help match you to lenders and products. Compare home loan rates, features and fees to find the right mortgage for your situation.

Main types of home loans

Understanding the main loan types helps you match the product to your goals: buying your first home, investing, or refinancing.

Variable rate loans

A variable rate loan has an interest rate that moves with lender pricing and underlying benchmark changes. Check Reserve Bank commentary at https://www.rba.gov.au/ for official cash rate updates. Variable loans usually offer more flexibility: extra repayments, redraw, and offset options. They can rise or fall over the loan term.

Fixed rate loans

A fixed rate loan locks the interest rate for a set term (commonly 1–5 years). It gives payment certainty but limits flexibility: extra repayments may be restricted and break costs can apply if you exit early. Fixed loans suit borrowers who prioritise budgeting stability.

Split loans

A split loan divides the mortgage between fixed and variable portions — offering a balance of predictability and flexibility. You can tailor the split depending on your tolerance for rate changes and need for features like offset accounts.

Interest-only loans

With interest-only terms (usually 1–5 years), you pay interest only; principal remains unchanged. This reduces short-term repayments but increases long-term cost and reduces equity accumulation. Often used for investment strategies but subject to lender serviceability limits.

Offset and redraw facilities

An offset account is a transaction account linked to your mortgage; balances offset the loan principal for interest calculations, reducing interest payable. A redraw lets you withdraw extra repayments you've made. Both help reduce interest but have operational and tax implications.

How to compare home loans

Use a simple comparison to weigh rate behaviour, flexibility and typical fees.

Loan type	Typical rate behaviour	Flexibility	Common fees	Best for
Variable rate	Moves with market / RBA moves	High — extra repayments, offset/redraw	Ongoing fees, establishment fees	Borrowers wanting flexibility
Fixed rate	Locked for term	Low — limited extra repayments, break costs	Break costs, establishment fees	Budget-conscious borrowers
Split loan	Mixed	Medium — each portion retains its rules	Combination of both	Balanced risk strategy
Interest-only	May be fixed or variable	Low–medium — limited principal reduction	Higher rates, possible ongoing fees	Investors or short-term cashflow needs
Offset/redraw feature	N/A	Improves flexibility	May carry account fees	Savers who keep buffer balances

Compare the comparison rate (which includes most fees) as well as the advertised headline rate when comparing offers.

Key features and extras to look for

When comparing loans, feature sets can matter more than small rate differences.

Offset account — reduces interest by offsetting balances; ideal if you keep savings in a linked account.
Redraw — access extra repayments; check minimums, hold periods and fees.
Extra repayments — the ability to repay more than the minimum without penalty reduces interest and term.
Repayment frequency — weekly or fortnightly repayments reduce interest compared to monthly cycles.
Portability — move the loan to a new property without refinancing (if the lender allows).
Split options — combine fixed/variable portions to balance certainty and flexibility.
Repayment types — principal & interest (P&I) reduces principal over time; interest-only reduces short-term repayments.
Digital tools and statements — mobile banking, online calculators and e-signing speed the process.

Use a home loan calculator to model options and run scenarios.

Costs, fees and what affects how much you borrow

Loans carry interest and multiple fees. Knowing these prevents surprises.

Interest — the cost of borrowing; charged as an annual percentage rate, often shown as the headline rate.
Comparison rate — includes interest plus most fees — use it to compare loans fairly.
Establishment/application fees — upfront processing charges.
Ongoing fees — monthly or annual account keeping fees.
Exit/break fees — costs when paying out a fixed term early.
Valuation/survey fees — lender may charge for property valuation.
Lenders Mortgage Insurance (LMI) — payable when LVR exceeds typical thresholds; protects the lender, not you.
Government charges — title registration, stamp duty and other state taxes; consult ATO/state revenue offices for guidance (see https://www.ato.gov.au/ for tax matters related to investment property).

LVR and LMI explained

Loan-to-value ratio (LVR) = (loan amount ÷ property value) × 100. Higher LVRs (e.g., over 80%) often attract LMI.

Example scenarios:

80% LVR — usually no LMI.
90% LVR — likely LMI applies; cost depends on loan size and LVR tier.

Loan-to-value ratio and lenders mortgage insurance are important concepts to understand.

Comparison rate vs advertised rate

The advertised rate is the headline interest rate. The comparison rate attempts to show the true cost by adding common fees. Always check both when comparing loans.

Eligibility and documents lenders check

Lenders assess your creditworthiness and ability to repay.

Key eligibility factors:

Income and employment stability — salary, bonuses, self-employed income (with tax returns).
Expenses and living costs — lenders use living expense benchmarks and your declared costs.
Credit history — defaults, late payments, bankruptcy affect approval.
Deposit size and LVR — larger deposits reduce LVR and may remove need for LMI.
Guarantors — may increase borrowing power but add legal risk and obligations.

Typical documents lenders request:

Photo ID (driver licence, passport)
3–6 months of payslips or recent tax returns (for self-employed)
Bank statements (3–6 months)
Rental statements (if investment property)
Contract of sale (if under offer)
Details of debts (credit cards, other loans)
Evidence of deposit / source of funds

Guarantors can help increase borrowing power but add legal risk and obligations.

How repayments are calculated

Monthly repayments for a standard principal & interest loan use the annuity formula.

Formula (monthly repayment M): M = P * [ r * (1 + r)^n ] / [ (1 + r)^n - 1 ]

where:

P = loan principal
r = monthly interest rate (annual rate ÷ 12)
n = total number of monthly payments (years × 12)

Worked example (illustrative):

Loan amount (P): $100,000
Annual interest rate: 5% → monthly rate r = 0.05 / 12 ≈ 0.0041667
Term: 30 years → n = 360 months

Using the formula, monthly repayment M ≈ $1,221 per month (illustrative). First-month interest ≈ $100,000 × 0.05 / 12 = $1,500; principal repaid in month 1 ≈ $121. First-year summary (approximate): total paid ≈ $1,221 × 12 = $18,652; interest ≈ $19,400; principal repaid ≈ $1,252.

Small extra repayments or keeping funds in an offset account can materially reduce interest and loan term — model scenarios with a calculator.

Borrowing power and pre-approval

Lenders use serviceability tests to determine borrowing power. Key points:

Serviceability considers income, living expenses, existing debts and a rate buffer (lenders often test at a rate higher than the current rate to allow for increases).
Buffers may be +2% or more above the current rate when testing.
Pre-approval (conditional) estimates how much you can borrow and gives confidence when negotiating. It is not a guarantee — final approval requires valuation and full documentation.

Use a borrowing calculator to check estimates.

How to choose the right loan

Use this checklist to narrow options:

Compare both headline and comparison rates.
Check features: offset, redraw, extra repayments, portability.
Consider fees: establishment, ongoing, valuation and exit fees.
Match loan type to purpose: fixed for budget certainty; variable for flexibility.
Confirm pre-approval amount and conditions.
Assess lender service and digital tools.
Factor in LVR and potential LMI cost.
Review break costs for fixed loans if you expect to sell or refinance.

Refinancing and switching lenders

Refinancing can lower costs or access better features, but weigh savings against switching costs.

When to consider refinancing:

You can get a materially lower comparison rate after fees.
You need different features (offset, redraw).
Consolidating debt into the mortgage is appropriate.
To access equity for renovations or investment.

Costs and steps:

Compare potential savings vs establishment and exit fees.
Obtain payout figures and disclosure statements from current lender.
Apply for the new loan and complete valuation.
Complete settlement and ensure discharge of the previous mortgage.

Refinancing can lower costs or access better features, but weigh savings against switching costs.

Common mistakes and how to avoid them

Focusing only on the headline rate and ignoring the comparison rate and fees.
Over-borrowing without stress-testing future repayments.
Ignoring the value of offset/redraw when you have savings.
Not checking fixed-break costs before committing to fixed terms.
Skipping a full document checklist and delaying approval.

FAQ

What is the difference between fixed and variable home loans?

Fixed loans lock the interest rate for a term and offer repayment certainty but limited flexibility (and potential break costs). Variable loans can change with market/lender moves but usually allow extra repayments, redraw and offset features.

How much deposit do I need to buy a home?

Typical minimums are 5–20% of purchase price. Deposits below 20% commonly attract LMI; larger deposits reduce LVR and often secure better terms.

What is Loan-to-Value Ratio (LVR) and when do I pay LMI?

LVR = (loan ÷ property value) × 100. LMI usually applies when LVR exceeds a lender's threshold (commonly 80%); cost depends on loan size and LVR band. Loan-to-value ratio and lenders mortgage insurance are important concepts to understand.

How are monthly repayments calculated?

Use the amortisation formula shown above. Monthly repayments depend on principal, rate and term. Small rate or term changes can materially affect repayments.

What documents do lenders need for a loan application?

Photo ID, payslips or tax returns, bank statements, evidence of deposit, details of debts, and contract of sale (if under offer).

What is pre-approval and why should I get it?

Pre-approval is an initial conditional approval that gives you an estimated borrowing limit. It helps you make confident offers but is subject to final checks like valuation and full documents.

When should I consider refinancing?

When savings after fees are clear, you need different features, or to access equity — but always compare break costs and fees.

Key takeaways

A home loan is a major financial commitment. Compare headline and comparison rates, account for fees and features (offset, redraw, portability), understand LVR/LMI and serviceability tests, and model repayments using the amortisation formula. Use pre-approval to set realistic expectations and gather required documents early.