Types of home loans in Australia
Last updated: 20 May 2024 | Estimated read time: 6 Minutes
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Fixed and Variable loans | Owner-occupied | Investment | Alt doc | Non-conforming |
Self-Managed Super Fund (SMSF) |
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
Variable rate loan
Split loan
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
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.
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