Choosing the right home loan is one of the biggest financial decisions you'll make.
With many options available, understanding the differences helps you choose a loan that suits your financial goals. Whether you're a first-home buyer, investor, or self-employed, the right mortgage structure can save you money and give you greater financial flexibility.
In this blog post, our mortgage brokers in Brisbane walk you through the most common types of home loans. By the end of this blog, we hope you’ll have a clearer picture of your options. If you need further support or guidance, we invite you to get in touch with our expert team today.
5 popular types of home loans
1. Principal and interest (P&I) home loans
A principal and interest (P&I) loan is the most common type of home loan in Australia. Each repayment covers both the loan principal (the loan amount borrowed) and interest. These payments gradually reduce the loan balance over time.
Who is this type of loan good for?
- First-home buyers, as it provides a structured way to pay off the home while building equity from the start.
- Homeowners looking for a straightforward loan structure – ideal for those who want predictable repayments without unexpected changes.
- Borrowers who want to reduce their debt over time. Since both the principal and interest are repaid, the loan balance decreases steadily, helping borrowers become debt-free faster.
Pros and cons of principal and interest loans
☑ Builds home equity faster
☑ Predictable repayments
☑ Typically lower interest rates than interest-only loans
☐ May have higher repayments compared to interest-only loans
2. Interest-only home loans
An interest-only home loan allows borrowers to pay just the interest for a set period (e.g., 5 years). After this period, repayments increase to cover both principal and interest.
Who are interest-only home loans good for?
- Property investors looking to maximise tax deductions. Interest payments may be tax-deductible for investment properties, making this an attractive structure.
- Homebuyers who need lower repayments initially. Can be useful for those expecting financial changes, such as starting a family or adjusting to a new job.
- Borrowers expecting an increase in income in the future. This helps manage cash flow in the short term, with the plan to make larger repayments once income rises.
Pros and cons of interest-only home loans
☑ Lower home loan repayments during the interest-only period
☑ Can improve cash flow for investors
☑ Allows flexibility for short-term financial planning
☐ May face higher repayments once the interest-only period ends
☐ Does not reduce the loan balance during the interest-only phase
3. Fixed-rate home loans
A fixed-rate home loan locks in the interest rate for a set period (e.g., 1-5 years). This means repayments remain the same regardless of market changes.
Who is a fixed-rate loan good for?
- Borrowers who prefer stability and predictability. May provide certainty over repayments, making budgeting easier.
- Homeowners who want to budget with confidence. Knowing exactly how much is due each month prevents financial surprises.
- Those who expect interest rates to rise. Locks in a lower rate before potential increases, offering cost savings over the fixed term.
Pros and cons of fixed-rate home loans
☑ Predictable repayments for financial stability
☑ Protection from interest rate rises
☑ Easier budgeting
☐ Less flexibility (may have break fees if you exit early)
☐ Limited ability to make extra repayments
4. Variable-rate home loans
A variable-rate home loan has an interest rate that fluctuates based on market conditions. This can lead to lower or higher repayments over time.
Who is a variable-rate loan good for?
- Borrowers who are comfortable with market fluctuations. Best for those who can handle potential rate changes and adjust their budget accordingly.
- Those who want the ability to make extra repayments. Unlike fixed-rate loans, variable loans often allow additional payments without penalty, helping borrowers repay their loan faster.
- Homeowners looking for flexible loan features. This typically includes features like offset accounts and redraw facilities, offering more control over finances.
Pros and cons of variable-rate home loans
☑ Flexibility to make extra repayments
☑ Can save money if interest rates drop
☑ Access to loan features like redraw and offset accounts
☐ Repayments may increase if interest rates rise
☐ Harder to predict long-term costs
Speak to a mortgage broker to dive deeper into the differences between a fixed vs. variable home loan.
5. Low-doc loans
A low-doc home loan may be suitable for self-employed individuals or borrowers who may not have the traditional income documents required for standard home loans. Lenders assess affordability using alternative financial proof, such as bank statements and accountant declarations.
Who is a low-doc loan good for?
- Self-employed individuals. Traditional payslips aren’t always available, so this loan allows them to apply using bank statements or accountant declarations.
- Freelancers and contractors with irregular income. These borrowers may not meet full doc loan criteria but can still demonstrate earning capacity through alternative documentation.
- Small business owners often reinvest profits into their business, making traditional proof of income difficult. A low-doc loan provides a solution for securing finance.
Pros and cons of low-doc home loans
☑ Provides home loan access for self-employed borrowers
☑ Less paperwork required compared to full doc loans
☑ Can offer flexible loan terms
☐ May have higher interest rates than standard loans
☐ Requires alternative proof of income
Home loan FAQs
What is an offset account, and how does it work?
An offset account is a transaction account linked to your home loan that helps reduce the interest you pay.
It works like a regular bank account, but instead of earning interest, every dollar in the account offsets your loan balance. This means interest is only charged on the remaining loan amount after deducting the offset balance.
Not all lenders offer offset accounts on every loan type. For example, some fixed-rate loans may not allow an offset account or may only offer a partial offset, where only a portion of the balance is used to reduce interest.
Offset accounts are more commonly available with variable-rate loans, but some lenders provide them on fixed loans with limitations.
How much deposit do I need to get a home loan?
The deposit needed depends on your situation. A 20% deposit avoids Lenders Mortgage Insurance (LMI), but we help many clients secure loans with as little as 5%.
Different types of home loans may have different requirements. For example, low-doc loans usually require a higher deposit.
What fees should I consider when choosing a home loan?
We guide our clients through common costs like application fees, account fees, and LMI. Knowing these upfront helps you budget and avoid surprises.
How can a mortgage broker help me find the right loan?
We compare lenders, negotiate better rates, and handle all the paperwork, making the process stress-free. We aim to find the right loan that suits your needs and budget!
Choosing the right home loan starts with the right advice
With so many home loan options available, finding the right one can feel overwhelming.
As experienced mortgage brokers, we take the time to understand your needs and match you with a loan that fits your goals.
Ready to explore your options? Get in touch with our team today for expert advice and personalised loan solutions. Call Mortgage Broker Brisbane on
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