Money Buddy guide to home loan types

Confused about all the different types of home loans on offer? This Money Buddy guide cuts through the jargon and explains what mortgage types are available and how to decide what you need.

What are all these home loan types?

Standard variable rate loans

The rate of a standard variable loan changes with the market – so when interest rates rise, so do your repayments. The rate is set by the lender, but is influenced by the economic climate, government policy, and the official Reserve Bank of Australia overnight cash rate. These loans can include a range of features such as redraw facilities, offset facilities, and the option to split the loan between fixed and variable interest rates.

Which home loan seekers?

As the most popular loan type in Australia, standard variable rate loans can be appropriate for many people. They generally feature a good degree of flexibility, so will be good for lenders who would like to make extra repayments or pay their loan off early.


If interest rates go down, so does your loan. This means if you continue to make the same repayments you’ve been making, the loan term will be reduced.


If interest rates rise you could be in for a struggle. Hopefully if you’ve been careful in your budgeting you haven’t overcommitted yourself in your loan amount so much that you can’t afford to make the increased repayments should rates rise

Basic or "no frills" variable loans

Basic variable rate loans tend to operate in the same way as standard variable loans, but have less features, and consequently a lower interest rate.

Which home loan seekers?

These loans suit budget-conscious borrowers, in particular first home owners, who don’t need all the features of a standard loan, but want a very competitive interest rate.


"No frills" loans have some of the lowest rates available.


They lack many of the features of standard variable loans, and are therefore less flexible.

Introductory or "Honeymoon" home loans

Like "honeymoon" credit card rates, introductory honeymoon home loans offer a discounted interest rate for a set period (normally one to two years) and then revert to the standard variable rate for the remainder of the loan period.


The introductory rate could be very competitive and might help ease the adjustment into the loan.


There are often extra conditions on these loans, such as early repayment fees.

Fixed rate home loans

The home loan rate is fixed for a particular term – usually between one and five years – and you make repayments at that set rate for that period of time. You then have the option to continue with a new fixed rate period, change to a variable rate loan, or split your loan between fixed and variable rates.

Which home loan seekers?

Fixed home loans suit people who like to know exactly how much they need to budget for mortgage repayments, and the security of not having to worry about rising interest rates.


You have the security of knowing exactly what your repayments will be, and are protected from making extra repayments if interest rates rise.


If interest rates fall you won’t get any benefit. Also, lenders sometimes charge fees for making extra repayments on your loan, and some fixed rate loans don’t have as many features as standard variable loans.

Split rate loans

Split rate home loans enable you to spread the amount you borrow into several different loan products, for example a mixture of fixed and variable rate loans, allowing you to get some of the benefits of multiple products.

Split rate loans usually provide the flexibility to decide what percentage of your loan you would like to split in each product, and to select different repayment options for each of these.

Which home loan seekers?

Split rate loans are good in markets where interest rates are on the rise, as they allow you to lock in a portion of the loan at a fixed rate. They are great for people seeking the security of a fixed rate loan, and the flexibility of a variable rate loan.

Bridging Loans

Bridging loans are designed to “bridge the gap” between buying a new home and selling your current one. The interest rate is usually the same as the standard variable rate.

Which home loan seekers?

Bridging home loans are for people who don’t want to miss out on buying a new property while they wait to sell their current home.

Line of credit home loans

Line of credit home loans give you the option to withdraw money from the loan against the equity in your property for a legitimate purpose when you wish. Money can be withdrawn up to the original loan amount at any time – in this way a line of credit loan is similar to an overdraft facility.

Which home loan seekers?

Line of credit loans are great for people who have a large deposit, or good equity in their property, and who are disciplined about their budgeting.


Line of credit loans can provide you with funds to make investments or to carry out renovations on your property. The line of credit can usually be accessed via regular banking facilities and can provide extra funds in times of need.


You need to be very strict with your budgeting to make sure you are reducing the principal of your loan and not just paying the interest. Line of credit loans can also be more expensive than other home loan options.

Credit impaired home loans

These loans are designed for people who have a previous payment default recorded against their name. They often attract a higher interest rate may incur extra fees.

No deposit home loans

No deposit home loans allow you to borrow the full amount of capital needed to purchase your house, without the usually required deposit of at least five per cent. Some lenders will actually allow you to borrow more than the purchase price to cover extra associated costs.

Which home loan seekers?

No deposit home loans are good for people who have been unable to save a deposit, but have a good credit history and income, for example first home buyers.


No deposit loans allow you to buy property even though you haven’t saved a deposit yet.


They generally have stricter criteria for approval, and are only available for certain types of properties

Low documentation or no documentation loans

Low doc and no doc loans are non-conforming loans designed for borrowers who don’t meet the lender’s strict lending conditions, such as people who can’t provide the required financial statements.

Which home loan seekers?

Low doc loans are great for small business owners or self-employed people whose financial statements are not available, and who have a large deposit or equity in other property.


A low doc or no doc loan can allow you to take out a loan even if don’t have all the required documentation. They provide less hassle and less paperwork.


They generally require you to have existing assets or a large deposit. Interest rates are often higher than regular loans.

What next?

Now you have more of a grasp of what home loans types are available, you might like to consider the home loan features you require. Or you might like to try our mortgage calculators.

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