Home Loan Types
Read our guide to every mortgage type, from fixed and variable to less common products like SMSF loans and low doc loans.
There are many home loan types in Australia, including some highly specific products you've probably never heard of.
This page breaks down all of them for you. And if you're still confused, you can also get guidance from an expert mortgage broker.
Loan purpose: investor or owner-occupier
One way to distinguish home loan types is by purpose. If you're buying a home to live in, you need an owner-occupier loan. If you're purchasing a property as an investment, then you need an investment loan.
Loans for investors and owner-occupiers often have all the same features and can be either fixed or variable, with interest-only or principal-and-interest repayments. The main difference is investor loans have higher interest rates.
Rate type: fixed and variable
Mortgages with variable interest rates are the most common type of mortgage in Australia, especially for owner-occupiers. They're flexible products but the rate can change at any time.
Unlike variable loans, loans with fixed interest rates won't change for a set period of time (the fixed period). This means your repayments stay the same. After this period, the loan reverts to a variable rate.
When you're borrowing money to build a home, you'll need a construction loan. These loans require repayments at different stages as construction progresses.
Line of credit loans
If you already own a property and have paid off some or all of the mortgage, you have something called equity. You can use a line of credit loan to borrow against this equity.
This can be a good way to fund a purchase such as a renovation or a holiday.
Bad credit mortgages
It's hard to get an ordinary mortgage if you've had credit trouble in the past. Bad credit loans allow you to secure finance even if you have some negative marks on your credit history.
Lenders who deal in these loans typically take a more hands-on approach to assessing your credit file and take into account the circumstances that led to your poor credit history. However, be aware that these loans often carry higher interest rates.
A home loan application requires evidence of your employment and regular income. This is easy if you're a full-time salaried employee (in other words, a PAYG borrower). It's harder if you're self-employed. Low-doc loans exist to help these borrowers.
You can apply for a low doc loan with a letter from your accountant, Business Activity Statements (BAS), income declaration forms or other types of documentation to show your earnings. Interest rates are often higher with these loans.
Self-managed superannuation funds (SMSFs) allow investors to take control of their retirement savings and invest them in property.
Many lenders offer home loans for SMSF property investment. These loans are structured like normal home loans, though the structuring of the actual SMSF for property investment can be fairly complicated.
Older borrowers (60 and above) looking to fund retirement costs without selling their home can take out a reverse mortgage. You borrow against the value of your property and when you sell the property (or when your heirs sell after your death), the lender gets repaid.
What do you do when you've bought a new house, but you haven't sold your old one yet? Or what if you've sold but the settlement dates don't line up, meaning you don't have money to cover the purchase?
A bridging loan will help you cover this shortfall. You pay interest with an interest-only rate and then pay the loan off when your sale is finalised.
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