Understanding Your Options: Different Types of Home Loans

With so many different types of home loans available, it can be overwhelming to understand the differences and choose the right one for your needs. In this article, we will explore the various types of home loans, including, Revolving Credit, Offset, Table and Interest Only, to help you make an informed decision for your first home loan or if you want to restructure your existing loan.

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Revolving Credit Home Loan

A Revolving Credit Home Loan is often likened to a large overdraft, it stands out as a flexible financing tool for homeowners. Your loan acts like your everyday account, so money flows in and out of your loan balance as you get paid and as you spend and pay bills. Unlike term loans, there are no predetermined repayments on specific dates, granting you the freedom to make payments whenever and in whatever amount you desire. Also, if necessary, you may withdraw money from the account if it does not exceed your credit limit.

  • It is important to consider whether you have the willpower to refrain from accessing the available credit before acquiring this home loan. It’s an ideal solution for covering the costs of renovations, educational expenses, or any unpredictable financial needs that may arise, ensuring that funds are readily available without the hassle of securing additional loans.
  • With a revolving home loan, the interest rate is subject to variability and can change unpredictably, causing the rate of interest you pay to fluctuate. To reduce the amount of interest paid on revolving credit balances, it is important to keep the balance as low as possible. This can be achieved by ensuring that as much money as possible is kept in the account to minimise daily interest charges. One way to achieve this is by using a credit card for daily expenses, which keeps money in the account for a longer period and results in a lump sum payment when the credit card is paid.
  • For those with fluctuating financial needs or projects that require staged funding, a revolving credit home loan offers a blend of accessibility and control, providing a tailored solution that aligns with both immediate and long-term financial goals. Consider this type of loan only if you possess strong budgeting skills and have the self-control to resist the temptation of overspending and reaching the limit of your credit.

Offset Home Loan

An Offset Home Loan can be connected to particular everyday or savings accounts provided by your bank. The balance held in these accounts is used to reduce the interest rate charged on your offset loan. Some banks allow multiple accounts to be linked (these could be your accounts, your parent’s or your children’s accounts). As an example, if you have an outstanding home loan of $400,000, but hold $20,000 in your savings account, the interest is only payable on $380,000. You won’t earn any interest on the cash savings while it’s part of the offset home loan. 

  • By opting for an Offset home loan, you could potentially save money due to the typically higher interest rates of home loan loans as compared to cash deposit rates. It’s important to note that the interest rate of an offset home loan tends to be higher than the top fixed rates for 2-year, 3-year, and 5-year terms. 
  • The interest rate on an offset loan is also variable, so it can change at any time.
  • The smaller the gap between the balance of your offset loan and your account, the lower your interest payments will be. Several banks offer offset home loans, all with different interest rates and fees. For homeowners with a healthy savings buffer, an offset home loan provides a flexible way to reduce interest costs without sacrificing access to your funds.
  • With floating or revolving credit loans, repayments may stop once the loan is fully repaid. However, with an offset loan, repayments typically continue regardless of the offset balance. This can be advantageous, especially if you’re looking to pay down your mortgage faster. In the case where 100% of the loan is offset, 100% of the payment goes toward reducing the principal amount, allowing you to build equity in your home more quickly.
  • Overall, Offset Home Loans blend the benefits of saving and borrowing, offering a compelling option for financially savvy homeowners looking to maximise their money’s potential. By effectively lowering the interest payable on your home loan, an offset account can make a significant difference in how quickly you’re able to achieve full home ownership, offering a smarter way to manage your home loan and savings simultaneously.

Table Home Loan

Table Home Loans, recognised for their simplicity and stability, have a regular repayment structure and terms of up to 25 or 30 years. Regular payments towards both principal and interest are required on a monthly, fortnightly, or weekly basis. At the beginning of the loan, the majority of your payments will be allocated towards the interest, while as you gradually decrease the outstanding balance, a larger portion of the payments will go towards the principal. This predictability is particularly valuable for first-time homebuyers, as it simplifies financial planning by ensuring that housing costs are fixed, allowing for easier budget management.

  • When considering a Table home loan, one important decision is whether to opt for a fixed or floating interest rate. 
  • Keep in mind that selecting a fixed rate may limit your ability to make additional payments or increase your repayments. 
  • Take time to consider the term of your loan, which is typically 25 years, but can be adjusted according to your preferences. Always explore your options, and make a decision that aligns with your long-term financial goals.

Interest Only Home Loan

Interest Only loans can be an attractive option for certain borrowers, especially investors or those looking for short-term financial flexibility. With an interest-only loan, borrowers have the option to pay only the interest on the loan amount for a specified period, typically ranging from one to five years. During this period, the principal balance remains unchanged, resulting in lower monthly payments compared to traditional principal and interest loans. This can free up cash flow for other investments or expenses. However, it’s important to note that once the interest-only period ends, borrowers will need to start repaying both the principal and interest, which can lead to higher monthly payments. Interest-only loans are best suited for borrowers who are confident in their ability to manage larger payments in the future or who have a short-term investment strategy in mind.

Combining Loan Types

Don’t forget, your home loan needs can be tailored with a variety of loan types. Combining a fixed-rate loan and a floating-rate loan allows for secure fixed payments while also providing the freedom to make lump sum repayments without incurring additional fees. Mixing fixed-rate periods or fixed and floating-rate loans offers protection against potential interest rate fluctuations. In addition, combining a flexible home loan with other loans provides the ability to access credit as necessary for home renovations while still making regular repayments towards reducing your debt.


You need to make your home loan work for you and it should be structured around your own particular behaviours, habits and financial situation. Don’t change your life to fit around a specific loan type, make it work for your lifestyle. At Rapson Loans and Finance, we understand that you shouldn’t have to change everything you’re comfortable with and used to just to accommodate a home loan. Contact us today to talk through what might be the best option for you. Whether you’re a first-time homebuyer or considering refinancing, we’re here to help you navigate the home loan landscape with confidence.