Choosing the right home loan is one of the most important financial decisions you'll make as a first home buyer. This guide covers the different types of home loans, interest rate structures, fees, and how to compare lenders effectively.
Fixed vs Variable Interest Rates
| Feature | Variable Rate | Fixed Rate |
|---|---|---|
| Interest rate | Can go up or down with the market | Locked for a set period (1 — 5 years) |
| Repayments | Can change when rates change | Predictable: same payment each month |
| Flexibility | High: offset, redraw, extra repayments usually allowed | Low: limited or no extra repayments, break costs may apply |
| Best for | Those who want flexibility and can handle rate changes | Those who want certainty and budget predictability |
| Risk | Rate rises could increase your payments | Break fees if you need to exit early |
Types of Home Loans
Standard Variable Home Loan
The most common type of loan. The interest rate fluctuates with the RBA cash rate. Most lenders offer offset accounts and redraw facilities. Best for borrowers who want flexibility.
Fixed Rate Home Loan
Your interest rate is fixed for 1 to 5 years. Repayments stay the same regardless of market changes. Good for budgeting but limited in features and can have expensive break costs.
Split Loan
A hybrid option where part of your loan is fixed and part is variable. This gives you both predictability and flexibility. Example: 50% fixed, 50% variable.
Low-Doc / No-Doc Loan
For self-employed borrowers who may not have standard payslips. Typically higher interest rates and requires a larger deposit.
Construction Loan
For building a new home. Funds are drawn down progressively as construction milestones are met. Usually variable rate during construction, then converts to a standard loan.
Key Loan Features to Compare
| Feature | Why It Matters |
|---|---|
| Comparison rate | Includes fees and charges: a better indicator of true cost than the advertised rate |
| Offset account | A transaction account linked to your loan: the balance reduces your interest (saving you thousands) |
| Redraw facility | Allows you to withdraw extra repayments you've made |
| Annual fees | $0 to $400+ per year: adds up over time |
| LMI requirement | If your deposit is under 20%, you'll likely pay LMI unless using schemes like the First Home Guarantee |
| Break costs | Fees for ending a fixed rate loan early: can be thousands |
Lenders Mortgage Insurance (LMI)
If your deposit is less than 20% of the property value, lenders typically require LMI. LMI protects the lender (not you) if you default. Costs can range from $5,000 to $30,000+. You can avoid LMI through the First Home Guarantee or Help to Buy schemes.
How to Compare Home Loans
- Get pre-approved from 2 — 3 lenders to see actual rates and fees
- Compare comparison rates: not just the headline rate
- Check fees: application, annual, settlement, discharge, and break costs
- Look at features: offset accounts can save you significantly
- Check the lender's service: apps, support, branch access
- Read the PDS: understand the terms and conditions
Major vs Small Lenders
| Big 4 Banks (CBA, Westpac, NAB, ANZ) | Smaller Lenders / Credit Unions | |
|---|---|---|
| Rates | Often slightly higher | Often more competitive |
| Features | Full-featured apps, branches everywhere | May have fewer features but lower fees |
| Approval speed | Slower (more process) | Often faster, more flexibility |
| LMI waivers | Strict criteria | May be more flexible |
Related Guides
- How to save a deposit faster
- First Home Guarantee: avoid LMI with 5% deposit
- Step by step: from pre-approval to settlement
- 10 mistakes first home buyers make
This guide is for general information only. Speak with a qualified mortgage broker or financial adviser before choosing a home loan.
How Repayments and Rates Work
Your home loan is amortised — each repayment pays down both interest and principal, with the interest portion shrinking over the life of the loan as the balance falls. This is why the interest rate matters so much: on a $600,000 loan over 30 years, each 0.25 percentage point of rate is roughly $90–$100 a month, and a 1% difference adds up to more than $100,000 in total interest over the loan. A comparison rate — which includes most fees — is the honest number to compare, because low advertised rates often come with higher fees or restrictive features.
Offset accounts and redraw work differently: an offset account reduces the balance your interest is calculated on while keeping your money accessible, effectively earning the loan rate tax-free; redraw lets you withdraw extra repayments you've made, but lenders can restrict redraw in some circumstances. If you have a First Home Guarantee loan, remember the guarantee is with the lender, not you — your obligations to the bank are otherwise the same as any borrower.
Action Plan: Comparing Loans in 2026
- Compare comparison rates, upfront fees, and ongoing fees across at least three lenders.
- Decide fixed vs variable — fixed gives certainty but typically locks out offset accounts and charges break costs; variable gives flexibility.
- Check the lender participates in the First Home Guarantee or Help to Buy before you apply.
- Ask about the serviceability buffer and how much you can genuinely borrow — don't rely on the bank's maximum.
- Read the product disclosure statement for redraw limits, portability, and exit fees.