Home Loans Australia
How home loans work, and how repayments and interest rates interact
A home loan is money borrowed from a lender and repaid over a set term, usually 25 to 30 years. Each repayment covers interest on the balance and part of the principal, and the mix shifts over time.
Principal
The amount you borrowed
Interest
The cost of borrowing it
Term
How long you repay
Rate structures
Fixed, variable and interest-only structures
Each structure trades certainty against flexibility. Compare how each one handles rates, repayments and extra payments before choosing.
Fixed rate
Your rate stays the same for an agreed period, so repayments are predictable. Break costs may apply if you exit early.
Variable rate
Your rate can move with the market. Repayments may rise or fall, but many variable loans offer extra repayment flexibility.
Principal and interest vs interest-only
Principal and interest repayments reduce the loan balance over time. Interest-only repayments cover interest alone for a set period, so the balance stays the same.
Loan features
Offset accounts, redraw and LVR
Offset accounts and redraw facilities can reduce the interest you pay over the loan term. The loan-to-value ratio then determines whether lenders mortgage insurance applies.
An offset account holds savings that are set against your loan balance, so you pay interest on less. A redraw facility lets you access extra repayments you have already made. Both features may carry conditions, so check the terms.
Loan-to-value ratio (LVR)
LVR is your loan amount divided by the property value. A lower LVR usually means a stronger position with lenders.
Lenders mortgage insurance (LMI)
LMI protects the lender, not the borrower, when the LVR is above the lender's threshold. The cost may be added to the loan or paid upfront.