What are the different types of home loans?

There are literally thousands of home loan products on the market, which can sound quite overwhelming. The trick is to to narrow down what you're looking for.

The different types of home loans 

Here's a list of the most common types of home loans available in Australia: 

1. Owner-occupier home loans
2. Refinance home loans
3. Guarantor home loans
4. Investment home loans 
5. Low-doc home loans
6. Reverse mortgages
7. Construction loans
8. Bridging loans
9. Line of credit home loans

1. Owner-occupier home loans 

Owner-occupier (OO) home loans are for borrowers who intend to live in the property the loan is being used to buy.

Owner-occupier loans usually have lower interest rates compared to many other products, particularly investor loans. This is because owner-occupiers are seen as lower risk borrowers.

Lenders regard owner-occupiers as more likely to prioritise their repayment obligations to hold onto their own homes than investors.

As such, owner-occupied loans are the meat and potatoes of home loans, historically accounting for around two-thirds to three-quarters of all home loans.

2. Refinance home loans

Refinancing a home loan simply means changing from one loan to another for the same property. This can be done through the same lender (internal refinance) or externally with a different lender.

In simple terms, if you refinance with another lender, they will lend you money to pay off your existing loan and you will resume paying off your new loan with them. 

Refinancing your home loan may give you a lower interest rate or loan features that better suit your circumstances. However, there may be fees and charges involved in switching loans that need to be considered.

See also: 11 things to consider before refinancing your mortgage

3. Guarantor loans

A guarantor on a home loan is someone who agrees to take responsibility for making repayments in the event that you can’t.

Usually a close family member like a parent, guarantors can be useful for people struggling to reach their deposit goal or wanting to extend their borrowing power, since the guarantee offers the lender extra assurance.

Sometimes, this can also mean lower interest rates or waived lenders mortgage insurance. While there are no specific 'guarantor home loan' products on the market, a guarantor-backed customer will often stand a better chance of being approved for a home loan. However, it's worth noting not all lenders or loan products accept guarantors. 

See also: Is it possible to buy a home with 0% deposit?

4. Investment home loans 

An investment home loan is for people looking to buy property for investment purposes. This generally means it will be rented out with the owner hoping to make a profit when the property is sold at some time in the future.

Investor loans tend to have higher interest rates than owner-occupier loans since investors are typically considered riskier borrowers than those buying a property to live in.

There can be tax benefits to taking out an investment home loan, as the Australian Taxation Office (ATO) permits interest payments (among other things) to be claimed as a tax deduction. 

See also: What makes a good investment property?

5. Low-doc home loans 

A low documentation home loan has less stringent proof of income requirements. 'Low doc' home loans can be better suited to self-employed or contract workers who can't offer up regular employee pay slips.

Low doc loan applications generally require ABN details, Business Activity Statements (BAS), or personal tax returns as proof of income.

These home loans often have higher interest rates and fees to compensate for their more generous lending requirements. They are also considered higher-risk loans. As such, they are generally not offered by mainstream lenders. 

6. Reverse mortgages 

Reverse mortgages allow older homeowners to borrow against the equity they hold in their homes.

Unlike other home loans, reverse mortgage borrowers do not have to make repayments while they're living in their home. Interest is still charged on the balance and when they pass away or the home is sold, the loan needs to be repaid in full, including interest.

Generally, the older the borrower, the more they can borrow with a reverse mortgage. However, there are rules in place around reverse mortgages, designed to ensure borrowers can't go into negative equity.

What to know about reverse mortgages

According to ASIC, reverse mortgages may create financial difficulty later in life for a number of reasons: 

• Interest rates and fees are generally higher than standard home loans

• Compound interest can cause your debts to increase as the interest you owe does

• If the value of your home doesn’t rise, you will have less money for future needs (such medical treatment or aged care) 

• Reverse mortgages may affect pension eligibility (depending on how released equity is used) 

• Fixed reverse mortgages can be costly to break 

7. Construction loans 

A construction home loan is a taken out to fund the building of a new home or undertake major renovations.

Unlike regular home loans, construction loans are released in instalments rather than a lump sum. This so-called 'progressive draw-down' method is designed to cover expenses as they occur and generally consists of five or six stages:

Borrowers are progressively charged interest as they draw down on the loan amount. 

8. Bridging loans 

A bridging loan is designed for the transition period between selling one home and buying a new one.

Bridging loans are commonly used to fund the purchase of a new home while the other one sells. The proceeds of the eventual sale are put towards reducing (or paying out) the loan amount. Any remaining debt can be converted to a standard home loan.  

Typically, bridging loans are an interest-only loan for a short term, up to a maximum of 12 months in most cases. They generally come with higher interest rates than standard home loans.

9. Line of credit loans 

A line of credit home loan allows borrowers to convert equity they've built up their home for cash - up to a set amount or 'credit limit'.

A line of credit loan offers revolving credit, meaning funds can be borrowed (up to the limit) and repaid at the borrower's discretion. In this way, it operates in much the same way as a credit card, except with lower interest rates.

Line of credit loans can be used to fund things such as: 

• Home renovations and repairs 

• Buying a second home

• Buying a car 

• Taking a holiday 

• Paying for a wedding, etc. 

Line of credit loans tend to require interest-only repayments, but often have higher interest rates and administrative fees attached to them.

Line of credit loans are less common in the current market, largely usurped by home loan products with redraw facilities and offset accounts.

1. Savings.com.au's two cents

Paying off a home loan is the single biggest financial commitment many Australians will face in their lifetimes, so choosing the best home loan product is understandably daunting.

Data released in early 2026 showed a record 77% of all new home loans were taken out via mortgage brokers in the December quarter of 2025. While brokers can certainly steer customers towards the home loans that can best meet their needs, it also pays to research the market to have some idea of the most competitive interest rates available and a basic understanding of the features that will best help you manage your mortgage for the next 30 years (hopefully, less.)

Here are some articles that may be able to assist:

• What is a home loan and how does it work?
• The Ultimate Aussie Homebuying Guide
• Compare home loan interest rates  

Types of interest rates on a mortgage

As well as the different types of home loans, interest rate and repayment types can also make a significant difference to how much your loan will cost you over the longer term.

Fixed or variable rate?

Fixed interest rate

A fixed interest rate is a ‘locked’ rate which will remain unchanged for a set period of time, usually between one to five years.

Borrowers can take advantage of this by fixing at a lower interest rate if they expect rates to rise in the future. But, by the same token, fixed-rate loans can disadvantage borrowers if rates drop.

To opt out of a fixed rate home loan, borrowers generally have to pay a break fee if they choose to end the fixed component of a home loan before the term is up. 

Variable interest rate

A variable interest rate is a loan with an interest rate that changes with the market.

This means the interest rate is likely to regularly change over the life of the home loan, which can quite significantly impact monthly repayments. 

Variable home loans are generally more flexible and can also have appealing features like the ability to make extra repayments (often at no additional cost) to help borrowers pay off their loans sooner, but don’t offer the budgeting certainty a fixed rate can provide. 

Read our article on fixed vs variable rate home loans to gain a greater understanding of the pros and cons of each. 

What is a split home loan? 

A split home loan splits repayments into a fixed-rate component and a variable-rate component. Split loans can allow borrowers to get the best of both options.

At the end of the fixed-rate period (generally up to five years), the fixed portion of the split loan will often revert to a ‘rollover rate’ usually specified in the terms and conditions. This rate can be higher than the variable component of the home loan.

Borrowers can choose whether to re-fix the rate at a new fixed rate available at the time or refinance the entire loan. 

Principal & interest or interest-only?

Principal & interest repayments 

The term ‘principal and interest’ (P&I) refers to components of your home loan repayments:

• principal - the initial amount you’ve borrowed

• interest - the cost charged to borrow the money 

Borrowers making principal and interest repayments will pay off a portion of the loan balance as well as interest with each payment.

Over time, as the principal decreases, more of each regular payment will go towards chipping away at the principal, also effectively dropping the amount of interest charged.

Interest-only repayments 

Interest-only (IO) payments, on the other hand, delay the repayment of the principal while the loan is in an interest-only period (typically up to five years). During this time, borrowers are only required to pay the interest component before the loan reverts to principal and interest repayments down the track.  

Because only interest is being paid, repayments will be lower for the IO period. But once it ends, repayments can jump significantly and the loan can be more expensive overall. 

The table below shows the difference in monthly and total repayments of an IO and P&I home loan, based on a 30-year loan of $400,000 at an interest rate of 5.00% p.a. and a five-year interest only period. 

Numbers from the Savings.com.au interest only calculator.

Bear in mind, the numbers above assume the interest rate remains consistent during both the P&I and IO period.

However, lenders will typically charge higher interest rates when borrowers are making interest-only payments, further extending the overall cost difference between the two repayment options.