For Aussies, buying a home is exciting, but picking the right home loan? That’s where things get tricky. With many types of mortgage options available, it’s easy to feel overwhelmed or unsure about where to start or what’s the best possible option you have on the market.

Lenders don’t just offer “one home loan”; there are different types of home loans and each them comes with its own benefits and drawbacks.

Choosing the right one can have a huge impact on your repayments, mental health, and your overall finance. That’s why you need to know all the options available out there, and what sets each of them apart.

Understanding the 19 Types of Mortgage Options in Australia

Home loans in Australia cater to different purposes, repayment options, and other benefits. There’s something for everyone here, which makes the possibility of getting your home funded almost a reality despite any financial hurdles you may have.

Unless you’re savvy in the Australian mortgage market, having a broker will help you go through the complexities smoothly. They can help you in the home loan process from start to finish.

That said, the quality of service you get depends on the broker you find. Here at Koalify, we help Aussies dreaming of a home to search, curate, and get a mortgage for free.

No hidden fees, consultation charges, or commissions whatsoever! 

And driven by ASIC’s Best Interests Duty, we guarantee to find you the most suitable home loan that fits your unique needs and goals. 

With our extensive panel of 30+ top lenders and 2,000+ mortgage solutions in Australia, you can unlock opportunities that you might miss otherwise. 

Interested? Contact us to get your dedicated mortgage advisor today!

The Two Common/Fundamental Types of Mortgages

These mortgages seperate home loans based on their intended use. This way, they’re able to provide accurate terms, benefits, and features depending on why one needs funding in the first place.

1. Owner-Occupier Loan

An owner-occupier loan is a mortgage for people buying a property they intend to live in. This is the most common type of home loan in Australia.

Pros:

• Lower interest rates than investment loans in most cases.

• Potential for government incentives like the First Home Owner Grant (FHOG) or stamp duty concessions.

• Flexible loan structures that let you choose between interest-only or interest+principal repayments to maximise cash flow.

• Repayments are tax-free since it’s your own home.

Cons:

• No tax benefits, as repayments aren’t tax-deductible.

• A deposit of 5–20% of the property value is usually required.

• Limited rental income opportunities as you can’t deduct interest unless part of the property is rented.

Suitable for:

• First-time home buyers.

• People looking to buy a primary residence.

• Families or individuals wanting stability and a place to live long-term.

On top of this, the Australian government provides grants for first-time home buyers (called First Home Buyer Grants) to help eligible Australians own a home sooner.

According to the HGS eligibility criteria set by Housing Australia, the scheme is available to all eligible Australian permanent residents, which was recently expanded from only Australian citizens.

This guarantee scheme comes in three different types, each designed to cater to different groups of Australians.

• First Home Guarantee (FHG): This scheme will assist homeowners who haven’t owned a property in Australia in the last 10 years with up to 15% of the deposit. 

• Regional First Home Buyer Guarantee (RFHG): Made for home buyers who have not owned a property in Australia in the last 10 years, but to help them buy a home sooner in a regional area. Provides assistance with deposits for up to 15% percent, lowering your deposit to as low as 5%.

• Family Home Guarantee: Helps eligible single parents or legal guardians to purchase a home sooner with a deposit as low as 2%. 

Each of the guarantee schemes has different eligibility criteria, so make sure you refer to the official Housing Australia website.

2. Investment Loan

An investment loan is a type of mortgage for purchasing a property intended to generate rental income or capital growth.

Pros:

• You can claim tax benefits, as interest on the loan and some property expenses are deductible.

• Potential for capital growth, as the property may increase in value over time.

• Flexible loan structures that let you choose between interest-only or interest+principal repayments to maximise cash flow.

• Builds wealth, allowing you to grow a property portfolio over time.

Cons:

• Higher interest rates than owner-occupier loans.

• Higher deposit requirements (often 20% or more).

• Risk of negative gearing as rental income may not cover expenses, creating a loss.

• Property management responsibility that requires you to deal with tenants, maintenance, and vacancies.

Suitable for:

• Individuals looking to invest in real estate for rental income or capital growth.

• Experienced property investors or those planning a portfolio over time.

• Borrowers comfortable with higher deposit and interest requirements.

Types of Mortgage Options Based on Repayment Structure

Both owner-occupier and investment loans come in a variety of repayment structures, each designed to suit different financial goals and circumstances. 

So whenever you choose one of the fundamental home loan types, your next step will be to determine what kind of a mortgage it should be in terms of repayment structure.

3. Principal and Interest (P&I) Loans

This is most common, and often considered the “standard” repayment structure of a home loan in Australia. 

With this loan, each repayment you make goes toward both:

1. The principal: The original amount you borrowed from the lender.

2. The interest: The cost of borrowing the money, charged by the lender.

Initially, a bigger portion of the repayment goes towards the interest, but as the principal reduces, the interest component decreases while the principal repayment increases.

Pros:

• Every repayment increases your ownership stake in your home, building equity over time.

• Repayments follow a predictable schedule, so you’ll fully repay your loan within the agreed term.

• You’ll pay less interest over the life of the loan compared to an interest-only structure.

Cons:

• Repayments are higher compared to interest-only loans.

• There’s less short-term cash flow flexibility if you want to minimise payments early on.

Suitable for:

• Homeowners who plan to live in the property long-term.

• Borrowers who want a straightforward repayment plan.

• Those who want to build equity steadily over time.

4. Interest-Only (IO) Loans

An interest-only home loan is a mortgage repayment type where the borrower is only required to pay the interest on the loan balance for a set period, usually 1–5 years. 

During this period, the principal does not decrease.  After the interest-only period, the loan typically reverts to P&I repayments, meaning repayments increase as the borrower begins to pay down the principal. 

IO repayments can be risky if property values don't rise in the interest-only period, as it could result in the borrower having less equity built in the property.

Pros:

• Lower repayments during the interest-only period.

• Can free up cash for other expenses or investments.

Cons:

• No principal reduction during the IO term.

• Higher repayments after the IO period ends.

• More interest paid overall.

Suitable for:

• Investors wanting tax benefits.

• Investors who anticipate holding the property for a relatively short term.

• Borrowers needing short-term repayment relief.

5. Fixed-Rate Mortgage

A fixed-rate loan means your interest rate stays the same for a set period, usually 1–5 years (sometimes longer, depending on the lender). 

This means your repayment amount will also remain unchanged during that period, regardless of market interest rate changes.

Pros:

• You know exactly how much you’ll pay each month, making budgeting easier.

• Your repayments won’t change even if market interest rates rise.

• Fixed repayments make it easier for long-term planning, especially on a strict budget.

Cons:

• You won’t benefit if interest rates drop, since you’re locked into a higher fixed rate.

• Flexibility is limited, as extra repayments, redraw facilities, or offset accounts are often restricted.

• Exiting or refinancing during the fixed term may involve significant break costs.

Suitable for:

• Homeowners or investors who want repayment certainty.

• People who expect interest rates to rise in the near future.

• Those with a tight budget who can’t afford fluctuations.

6. Variable-Rate Mortgage

A variable-rate loan has an interest rate that can go up or down, depending on market conditions and the lender’s decisions. 

Repayments will change when the rate changes. Your home loan interest rate can fluctuate according to the interest rates set by the Reserve Bank of Australia.

Basically, it’s the exact opposite of fixed-rate mortgages.

Pros:

• Your repayments may decrease if interest rates fall.

• These loans usually allow extra repayments, redraw facilities, and access to offset accounts.

• Refinancing is generally easier, with fewer break costs compared to fixed loans.

Cons:

• Repayments may rise if interest rates increase.

• Changing monthly amounts can make it harder to budget.

• Lenders can still adjust rates based on market conditions, even when the economy is stable.

Suitable for:

• Borrowers who want the flexibility to make extra repayments or refinance.

• People comfortable with some level of risk in exchange for potential savings.

• Those who believe rates will stay stable or drop.

7. Split Mortgage

For those who can't decide between a fixed or variable rate loan, a split home loan could provide the best of both worlds. 

This type of loan allows borrowers to allocate a portion of their loan amount to a fixed interest rate and the remaining portion to a variable interest rate. 

You can choose the proportion for each (e.g., 50/50, 70/30).

Pros:

• The fixed portion offers repayment certainty, while the variable portion provides flexibility and potential savings.

• You’re partially protected from rate rises, since the fixed side shields you from the full impact.

• Extra repayments are usually allowed on the variable portion.

Cons:

• Managing two loan portions means tracking different rates and repayment rules.

• The variable portion still leaves you exposed to potential rate increases.

• Refinancing the fixed portion early may involve break costs.

Suitable for:

• Borrowers who want stability but also flexibility.

• People who want to hedge their bets in unpredictable rate environments.

• Those unsure whether rates will rise or fall.

8. Introductory Rate Mortgage

An introductory loan, sometimes called a “honeymoon loan”, offers borrowers a lower interest rate for an initial period, usually between 6 months to 3 years. 

After this introductory period ends, the interest rate reverts to the lender’s standard variable rate, which is typically higher. 

The appeal of this loan lies in the short-term savings during the discounted period, but it’s important to plan for the rate increase that follows.

Pros:

• Lower repayments at the start make it easier for first-time buyers or borrowers with tight budgets to manage their finances.

• The reduced rate in the early period frees up money for renovations, furnishing, or other expenses.

• These loans are good for short-term property plans if you intend to sell or refinance before the honeymoon period ends.

Cons:

• Repayments can increase significantly once the introductory discount ends.

• Some lenders may offset the lower initial rate with higher ongoing fees.

• Borrowers may overextend themselves by taking on a larger loan than they can afford after the rate rises.

Suitable for:

• First-time buyers wanting to ease into mortgage repayments.

• Borrowers with short-term ownership plans, such as property flippers or those expecting a pay rise soon.

• Homeowners planning to refinance before the introductory period expires.

Types of Purpose-Driven Mortgages

Once you’ve sorted out the basic structure of your home loan, you need to identify the type of mortgage you need depending on the specific purpose of the property transaction. 

For example, building a new home or buying before selling your current one requires specialised loans such as construction mortgages or bridging loans.

9. Construction Mortgage

As the name suggests, construction loans are specifically tailored to borrowers building or renovating homes. 

Unlike a standard home loan, funds are released in stages (known as “progress payments”) as construction milestones are completed. 

This approach ensures borrowers only pay interest on the amount of money used at each stage. 

Construction loans are structured to align with the various stages of building, such as laying the foundation, erecting the framework, and completing the interior.

Pros:

• During construction, you typically only pay interest on the amount drawn down, not the full loan.

• Staged payments align with your builder’s schedule, helping you manage cash flow.

• These loans let you build or renovate a home exactly to your specifications.

Cons:

• Lenders often require detailed building plans, contracts, and permits, making the approval process more complex.

• Interest rates are often higher than standard home loans.

• Upon completion, the loan usually needs to be refinanced into a standard home loan.

Suitable for:

• People building a new home from scratch.

• Homeowners undertaking significant renovations or extensions.

• Investors developing property.

10. Bridging Mortgage

Bridging finance, or bridging loans, are short-term loans that enable you to purchase a new property before completing the sale of your existing property. 

Bridging loans can also provide finance to build a new home while you live in your current home. Lenders will typically allow 6–12 months to sell your existing property, and 12 months if a new property is being constructed.  

So it is an option designed to ‘bridge’ the gap between the purchase of your next home and the sale of your current property.

Pros:

• Lets you secure your new property without waiting for your current home sale.

• Flexible repayment options, often interest-only during the bridging period.

• Avoids the stress of needing to sell quickly (and possibly below market value).

Cons:

• Usually has higher interest rates than standard home loans.

• Short repayment terms (generally up to 6–12 months).

• You’ll be paying interest on the combined debt of both properties until the old one sells.

Suitable for:

• Homeowners who have found a new property they want to buy before selling their current one.

• People confident their existing home will sell within a short timeframe.

• Those with enough equity to cover both properties temporarily.

Types of Mortgage Options for Flexibility and Low Entry Barrier

The next question is whether you qualify under standard lending criteria or if you need a loan type that gives you more flexibility or a lower entry barrier. 

That’s where mortgage options like these come in. You might need them if you don’t quality for the home loans listed in the last section.

11. Low-Doc Mortgage

A low documentation loan is a type of mortgage designed for borrowers who can’t provide the standard income proof required for a traditional home loan, such as regular payslips, tax returns, or business financial statements. 

Instead, applicants may provide alternative forms of income verification, like bank statements, a letter from an accountant, or Business Activity Statements (BAS), to assess a borrower's ability to repay the loan.

Pros:

• Easier access to credit for borrowers without standard proof of income.

• Flexibility for people with irregular income streams.

• Enables self-employed individuals to buy property without waiting for multiple years of tax records. 

Cons:

• Higher interest rates compared to standard home loans.

• Borrowing capacity may be lower, as lenders are often more conservative with how much they approve.

• Stricter conditions, such as requiring a larger deposit (often 20% or more).

• May involve higher fees or charges due to increased perceived risk by the lender.

Suitable for:

• Self-employed individuals or small business owners with irregular or hard-to-document income.

• Freelancers or contractors who do not receive traditional payslips.

• People who have sufficient income but limited official paperwork to prove it.

• Borrowers with significant assets or equity who can meet higher deposit requirements.

12. Low Deposit Mortgage

A low deposit loan, also known as a high loan-to-value ratio (LVR) loan, is designed for borrowers who don’t have the standard 20% deposit that many lenders require. 

Instead, you can borrow with as little as a 5–10% deposit, sometimes even lower if you meet certain criteria.

However, because the lender is taking on more risk, low deposit loans almost always require you to pay Lenders Mortgage Insurance (LMI)— an added cost that protects the lender (not you) if you default on the loan. 

Pros:

• You can enter the property market faster since you don’t need to wait years to save a 20% deposit.

• Many lenders design products specifically for first-home buyers, making access easier.

• These loans can often be combined with government schemes like the First Home Owner Grants (FHOG).

Cons:

• Lenders Mortgage Insurance (LMI) can cost thousands of dollars, adding to your total loan.

• Some lenders may charge slightly higher interest rates to offset risk.

• Despite the low deposit, lenders may apply stricter eligibility requirements.

• If property prices fall soon after purchase, you risk negative equity, meaning you owe more than your property is worth.

Suitable for:

• First-home buyers who can service a home loan but haven’t saved a 20% deposit.

• Young buyers who want to enter the market before prices rise further.

• Borrowers with strong income but minimal savings history.

• People using government guarantee schemes to reduce or remove LMI costs.

Government schemes to lower your deposit:

If you’re seeking a home loan with a low deposit, you could also look into First Home Buyers Grants—an initiative by the Australian government to help eligible first-home buyers own a home sooner.

The scheme is divided into three:

• First Home Guarantee (FHG): Assists homeowners who haven’t owned a property in Australia in the last 10 years with up to 15% of the deposit. 

• Regional First Home Buyer Guarantee (RFHG): For home buyers who have not owned a property in Australia in the last 10 years, helping them buy a home sooner in a regional area. Provides assistance with deposits for up to 15% percent, lowering your deposit to as low as 5%.

• Family Home Guarantee: Helps eligible single parents or legal guardians to purchase a home sooner with a deposit as low as 2%. 

Each guarantee scheme has a different set of eligibility criteria, so make sure you refer to the official Housing Australia website.

On top of this, the Albanese Labor Government is bringing forward its expanded 5% deposit scheme to 1 October 2025, which is sooner than expected. It guarantees a portion of first home buyers’ loans so they can purchase with a smaller deposit and avoid LMI.

The eligibility for the scheme is universal, removing caps on places, income limits, and property price.

13. Guarantor Mortgage

A guarantor home loan is one where another person offers additional security to assist the borrower in obtaining a home loan. 

It effectively means another party agrees to 'guarantee' the loan should the borrower default on their repayments. 

Many types of home loans can have guarantors added. In the eyes of lenders, a guarantor considerably lessens the risk associated with the loan, and it can be the difference in having a home loan application approved or rejected.

However, different lenders will have different requirements associated with being a guarantor, and it's highly recommended that both the borrower and guarantor are aware of the risks and responsibilities of such a loan arrangement.

Pros:

• Can help you buy a home with little or no deposit.

• Avoids or reduces LMI costs.

• May allow you to enter the market sooner.

Cons:

• The guarantor is at risk if you default.

• It can put strain on family relationships.

• Your guarantor must meet lender eligibility requirements.

Suitable for:

• First-home buyers struggling to save a large deposit.

• Borrowers with strong income but limited savings.

• People with supportive family members willing to act as guarantor.

14. Line of Credit Mortgage

Once you have owned a property for a while and you have built up some equity by making repayments, you can then apply for a line of credit.  

A Line of Credit (LOC) works a bit like a credit card attached to the equity in your home. 

Instead of receiving one lump sum (like in a traditional home loan), you’re given access to a set credit limit that you can draw from at any time. You only pay interest on the amount you actually use, not the entire limit.

Pros:

• You can access funds flexibly and withdraw as needed for renovations, investments, or emergencies.

• You only pay interest on the amount you actually use, which keeps costs lower.

• Money can be redrawn easily without separate applications each time.

• This type of loan is great for ongoing projects where expenses happen in stages, such as building or renovating.

Cons:

• Easy access to funds increases the risk of overspending.

• Borrowers who lack discipline may fall into long-term debt if repayments aren’t managed well.

• Interest isn’t always tax-deductible unless the borrowed funds are used for investment purposes.

Suitable for:

• Homeowners with substantial equity who want ongoing, flexible access to funds.

• Property investors who need quick access to deposits or renovations.

• Home renovators working on long-term projects with staggered expenses.

• Financially disciplined borrowers who can manage repayments and avoid overspending.

15. Package Home Mortgage

A package home mortgage is a type of home loan that combines your mortgage with other banking services, such as a credit card, mortgage offset account, and savings or everyday banking account, for a single annual package fee. 

This means you don’t have to pay separate fees for every product.

Pros:

• Discounted interest rates (often significant over the life of the loan).

• Fee waivers on account-keeping fees, credit cards, and sometimes valuation fees.

• The convenience of having multiple products under one provider.

• Potentially extra flexibility (offset accounts, redraw, etc.).

Cons:

• Annual package fee (commonly $300–$400).

• You may not use all the included perks, making it less cost-effective.

• Bundling can make it harder to compare lenders and switch later.

• Discounts may be less valuable for smaller loan amounts. 

Suitable for:

• Borrowers with larger loan amounts who will benefit more from the interest discounts.

• People who want to bundle multiple financial products with the same lender for convenience.

• Those who will make use of offset accounts and fee-free banking perks.

Special Types of Mortgage Options for Niche Requirements

Finally, there are specialty home loans designed for unique borrower groups or investment strategies. 

These include SMSF loans for self-managed super funds, reverse mortgages for older Australians, and other niche products that cater to specific financial needs.

16. SMSF Mortgage

A Self-managed super fund (SMSF) home loan is designed for people who want to use their self-managed super fund to invest in property. 

The property is purchased and held in the name of the SMSF, and all income or capital gains from it go back into the fund, not to individual members directly. 

These loans are governed by strict legal and financial regulations.

It's also crucial for SMSF trustees to carefully consider the implications, ensuring compliance with superannuation laws and assessing the fund's ability to service the loan.

Pros:

• SMSF loans use superannuation savings to invest in property, with rental income and capital growth boosting retirement wealth.

• Concessional tax rates within super can apply to rental income and capital gains.

• Trustees have control over the property, loan structure, and management approach.

• Adds property to the SMSF’s investment mix, providing diversification from shares or cash.

• Borrowing allows larger asset purchases than the fund’s cash balance alone, offering potential for geared growth.

Cons:

• Must meet ATO regulations, and property can’t be lived in by you or related parties.

• Lenders usually require a 20–30% deposit plus costs.

• SMSF loans often have higher interest rates and fees than standard home loans.

• Fewer banks and institutions offer SMSF loans, limiting lender options.

• Property ties up a large portion of the SMSF’s funds, reducing liquidity.

• Setup is complex, often requiring legal and financial advice plus ongoing accounting and audit costs.

Suitable for:

• Investors who have an established SMSF with sufficient funds.

• People looking to grow their retirement savings through property investment.

17. Reverse Mortgage

A reverse mortgage is a type of loan available to senior homeowners, often over the age of 60,  allowing them to access the equity in their property without the need to sell it. 

It enables borrowers to receive funds as either a lump sum, a regular income stream, a line of credit, or a combination of these. The loan amount, plus interest, is repayable when the borrower sells the property, moves out, or passes away.

Reverse mortgages in Australia are regulated to ensure the borrower will not owe more than the value of their home, a feature known as a 'no negative equity guarantee'.

Pros:

• Provides tax-free funds without selling your home.

• No need for monthly repayments while you live in the home.

• Flexible payment options—lump sum, regular income, or line of credit.

• Can improve retirement cash flow.

Cons:

• Interest compounds over time, increasing the loan balance.

• Reduces the amount of equity left for your estate.

• Fees and interest rates can be higher than standard home loans.

• May affect eligibility for government benefits.

Suitable for:

• Seniors who own their home outright or have significant equity.

• Those wanting to boost retirement income without selling their home.

• Homeowners comfortable with reducing the inheritance they leave behind.

18. Green Home Mortgage

Green home loans, a relatively new addition to the mortgage market, are designed to encourage eco-friendly living, reduce energy consumption, and ultimately lower the carbon footprint of households. 

They typically offer lower interest rates or other incentives for sustainable properties or upgrades such as solar panels, rainwater tanks, or high energy-efficiency ratings.

Pros:

• Can offer discounted interest rates or reduced fees.

• Encourages energy-efficient and sustainable living.

• May increase your property’s value over time due to eco-friendly factors.

• Can help reduce future energy and water bills.

Cons:

• Limited to specific eligible properties or renovations.

• May require extra documentation to prove environmental standards.

• Not all lenders offer green loans, which can limit options.

Suitable for:

• Buyers building or purchasing a sustainable, energy-efficient home.

• Homeowners planning significant eco-friendly upgrades.

• Environmentally conscious borrowers wanting to save on long-term utility costs.

19. Non-Conforming Mortgage

Non-conforming loans are designed for borrowers who don't fit traditional lending criteria, often due to having a poor credit history, irregular income, or being self-employed. 

It can provide a pathway to home ownership for those who might otherwise be excluded from the mainstream home loan market.

Pros:

• Flexible approval criteria for borrowers who don’t meet standard requirements.

• Can help people with poor credit history or unusual income still secure a home loan.

• Allows for borrowing against unique or non-standard property types.

• Can be a pathway to rebuild credit history while owning a home.

Cons:

• Higher interest rates compared to standard loans.

• Stricter conditions, such as larger deposits or shorter loan terms.

• Fewer lenders offer these products, limiting choice.

• May have higher fees.

Suitable for:

• Borrowers with bad credit or bankruptcy history.

• People with irregular or unconventional income (e.g., freelancers, contractors, seasonal workers).

• Those seeking to buy unique properties that don’t meet standard lender criteria.

• Borrowers who need larger-than-usual loan amounts that exceed conventional limits.

Conclusion

In Australia, home loans aren’t limited to just “fixed” or “variable” rates. 

Lenders offer a wide range of products to suit different needs, ranging from low deposit and low documentation loans for borrowers with unique circumstances, to construction loans for those building a new home, and reverse mortgages designed for retirees. 

Before choosing your home loan, we highly recommend that you consult a mortgage broker or financial adviser to identify the best possible option for your unique needs.

Note: This information is of a general nature only and does not take into account your objectives, financial situation, or needs. Kindly consider seeking independent, licenced credit advice before acting.

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