Types of home loans in Australia

Family enjoying property bought at auction

 Last updated: 20 May 2024 |  Estimated read time: 6 Minutes

From owner occupied to investment, SMSF to low doc, here’s the lowdown on the different types of home loans available.

A home loan is likely to be one of the biggest financial commitments of your life, but there are so many different types available that it’s easy to get overwhelmed once you start researching. Should you go for fixed or variable rate? What’s the difference between a low-doc loan and a non-conforming loan? And do you really need a different type of home loan for an investment property?  

The truth is, there’s no single perfect home loan for everyone. Because we’re all different, there are lots of loans out there to suit a wide range of financial circumstances and goals. And that’s a good thing, if a bit confusing at times. Here’s a quick rundown of the main types of home loans in Australia – and what type of borrower they may be suited to. 

Fixed rate home loans and variable rate home loans

Choosing between a fixed or variable interest rate (or splitting between both) is one of the most important decisions you will make when it comes to your home loan. Even a small difference in rates could make a significant impact on your finances now and further down the road. The right option for you will depend on your current financial situation, future goals and whether you want to pay your home loan off early or not.  

Fixed rate home loan

The interest rate you pay on your loan is locked in or ‘fixed’ for a set period, usually up to five years – although at Pepper Money, we can offer fixed rate home loan options up to 10 years. This means your repayments will stay the same – they won’t rise or fall in line with interest rate changes. If interest rates go up, you won’t pay more, but if they go down, you won’t save more either. 

Variable rate loan

A variable rate home loan fluctuates according to the interest rate. This means your repayments go up with interest rate rises and reduce when interest rates go down. With a variable rate loan your repayments are less predictable than a fixed rate loan, but you’ll often get more flexible features, like the ability to make extra repayments without any penalties. For example, with our variable rate home loan options you’ll  benefit from a 100% interest offset sub-account.

Split loan

You can also choose to split your loan with certain lenders, so a certain percentage is fixed and the rest is variable. This could give you the best of both worlds – a degree of stability around your monthly repayments with the flexibility to make extra repayments and the potential to save if interest rates go down.

     

Owner occupied home loan

If you’re buying a home to live in, you would usually opt for an owner occupied home loan. There are a lot of different owner occupied home loans to choose from, so it’s worth taking the time to compare different rates, fees and features to find the one that best suits you.

For example, if you’re buying your first home, you might look for features like an offset sub-account, redraw facility or the ability to make extra repayments to pay off your loan faster. These things may not be as important if you’ve paid off most of your mortgage and are looking to downsize your family home.

An owner-occupier home loan could be an option if you’re:

  • A first-time homebuyer
  • Upgrading or downsizing your family home
  • Looking to relocate
  • Planning to move into a property you’ve previously had as an investment property

     

Investment home loans

Brokers get info from Pepper Money Broker Resource Hub

If you’re planning to buy your first investment property or grow your portfolio, you’ll need an investment home loan.

Investment home loans are tailored specifically for property investors and factor in the extra risks involved in dealing with the rental market and tenants. These loan options may have higher interest rates than residential home loans.

An investment home loan could be an option if you’re:

  • A seasoned property investor with a portfolio of properties
  • A new investor with a solid financial profile
  • A retiree or just about to retire
  • Looking to build out a diverse portfolio of investment properties

 

Whether you’re looking to buy your first investment property or growing your portfolio, our investment home loans are here to help make the property investment process easier.

     

Alt doc home loans

You might not have all the paperwork for a typical home loan, but that doesn’t have to mean you have to miss out on home ownership. Alt doc home loans are designed to be more flexible than your standard home loan so they can help you get onto the property ladder, even if you don’t tick every box. Because the risk is seen to be higher for the lender, alt-doc home loans usually come with a higher interest rate.

An alt doc home loan goes through the same stringent checks as a standard home loan, but you’ll typically get more options when it comes to how you prove your income.

For example, instead of supplying two payslips from your employer, or two years’ worth of tax returns if you’re self-employed, you may be able to provide six months’ business bank statements or a letter from your accountant.

An alt doc loan could be an option if you’re:

  • Self-employed
  • A small business owner
  • A seasonal or casual worker.

 

Our alt doc home loan options are designed to help borrowers who might not have the extensive paperwork required by other lenders.  

     

Non-conforming home loans

Life isn’t perfect and sometimes things happen which mean we miss a bill or two or fall behind on our loan repayments. If this happens to you, it may affect your credit score, which can put you out of the running for a standard home loan with a mainstream lender.

The good news is, you may still have options. Non-conforming home loans are designed for people who might have a less than perfect financial history, or a unique financial situation that means they need a little more flexibility and an understanding approach.

A non-conforming home loan could be an option if you’re:

  • Recently self-employed or you’ve just started your own business
  • Looking to consolidate multiple debts, including credit cards and/or personal loans
  • Previously declared bankrupt or have a history of credit defaults.

 

If you have previous credit defaults, you may be seen as greater risk by lenders. This can make it harder to get a home loan, but you don’t have to give up at the first ‘no’. At Pepper Money, we will look at your individual situation and see if we can find a solution that works for you. 

     

SMSF loans

If you’re looking to create income for your retirement, you might decide to invest in a property through your self-managed super fund (SMSF). However, you won’t be able to get a regular home loan – you’ll need a specialised SMSF home loan.

This is because of strict rules around buying property with your super under Australian superannuation and tax law. To get a SMSF home loan, you’ll need an established self-managed super fund, and your property will need to be held under a separate trust.

Because of the complexity involved, and the legal and tax implications, we recommend getting professional advice before you decide on a SMSF home loan.

A SMSF home loan could be an option if you’re:

  • Looking to build income through property investment for your future
  • Already have an established self-managed super fund
  • Able to meet the minimum requirements, which you can find here.

     

We’re here to help

First home buyer? Investor? Less than perfect credit rating? We understand that everyone’s real-life situation is different. That’s why we keep our thinking flexible and offer a wide range of home loan options.

Ready to get started? Wherever you’re at in your home loan journey, we can help you find a loan that’s right for you. Get started today

Contributor | Barry Saoud, General Manager, Mortgages and Commercial Lending

Barry joined Pepper Money in July 2021 as General Manager, Mortgages and Commercial Lending. He is responsible for the strategic direction and operating performance across product, credit, and settlements for mortgages, commercial loans, personal loans, and direct sales. Read more.

Apply for a Pepper Money Home Loan

Want to find out where you stand?

We've got the online tools and calculators to help get your home loan journey underway. Work out how much you may be able to borrow and even quickly find out what indicative interest rate you might be eligible for.

Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.

All applications for credit are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply. 

The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.

Pepper Money Personal Loans is a brand of Pepper Money Limited. Credit is provided by Now Finance Group Pty Ltd, Australian Credit Licence Number 425142 as agent for NF Finco 2 Pty Limited ACN 164 213 030. Personal information for Pepper Money Personal Loans is collected, used and disclosed in accordance with Pepper’s Privacy Policy & the credit provider’s Privacy Policy.

Pepper Money Limited ABN 55 094 317 665; AFSL and Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.

Pepper and the Pepper Money logo are registered trademarks of Pepper Group Assets (Australia) Pty Limited and are used under licence.

Get in touch with a Lending Specialist

Tell us about your situation. The more we learn, the better we can help.