Preparing financially
Understanding and comparing home loans
Principal-and-interest vs. interest-only, fixed vs. variable vs. split, the comparison rate, offset, redraw, extra repayments and the features worth paying for.
- Principal-and-interest loans reduce your balance over time; interest-only loans don't, and repayments typically rise once the interest-only period ends.
- Fixed rates offer budgeting certainty with less flexibility; variable rates offer flexibility with less certainty; a split loan blends both.
- The comparison rate — not the advertised interest rate alone — combines rate and most fees into one figure for genuine like-for-like comparison.
- Offset and redraw both reduce effective interest cost, but work differently and aren't included on every loan by default.
Principal-and-interest vs. interest-only
Most home loans are principal and interest: each repayment reduces both the amount borrowed (the principal) and pays interest on it, over an agreed loan term. An interest-only loan has an initial period (commonly a few years) where repayments only cover interest — the principal isn't reduced, and repayments typically rise noticeably once the interest-only period ends (ASIC (Moneysmart), verified 29 Jul 2026).
Fixed, variable and split rates
A fixed rate stays the same for a set period, then reverts to variable (or you negotiate a new fixed term) — easier budgeting, but usually fewer features, break fees if you switch early, and you miss out if rates fall. A variable rate moves with the lending market — harder to budget around, but usually more flexible, with easier switching and more features such as extra repayments. A split loan divides your balance between fixed and variable portions (you choose the split, e.g. 50/50), balancing certainty against flexibility.
Loan term and total interest
A shorter loan term means higher regular repayments but meaningfully less total interest paid; a longer term lowers repayments but increases total interest. Stress-testing your repayment against a rate rise before choosing a term is worth doing regardless of which term you pick — see the safe budget guide.
The interest rate vs. the comparison rate
The advertised interest rate is not the full cost of a loan. The comparison rate is a single figure combining the interest rate and most fees, designed to let you compare the true cost of loans with different rate/fee combinations (ASIC (Moneysmart), verified 29 Jul 2026). Also compare: the application (establishment) fee — a one-off cost when starting the loan; ongoing (service/administration) fees charged monthly or annually; and the cost of any features you actually intend to use.
Offset and redraw
An offset account is a linked transaction account whose balance is subtracted from your loan balance before interest is calculated — e.g. a $500,000 loan with $20,000 kept in a linked offset account is charged interest on $480,000 (ASIC (Moneysmart), verified 29 Jul 2026). It doesn't earn interest itself, but effectively reduces what you pay on the loan. A redraw facility lets you withdraw extra repayments you've already made, giving flexibility to access funds later — but check whether redraws incur a fee and whether the facility is available at all on your specific product, since not all loans include one by default.
Extra repayments, portability, cashback and rate-lock
Extra repayments beyond the minimum reduce your principal faster and cut total interest — check your loan allows them without a penalty, since some fixed-rate loans cap or restrict them. Portability lets you transfer an existing loan to a new property without fully refinancing — useful if you plan to move again, but not offered by every lender or product. Cashback offers (a lump sum for switching lenders) can be attractive but should be weighed against the loan's ongoing rate and fees over its full term, not just the upfront payment — a cheaper ongoing rate elsewhere can outweigh a one-off cashback within a year or two. A rate-lock fee guarantees a fixed rate between application and settlement even if rates rise in that window — relevant mainly when settlement is some months away and rates are expected to move.
Introductory rates and refinancing
An introductory (honeymoon) rate is a discounted rate for an initial period that reverts to a higher standard rate — always check what the rate becomes afterward, not just the headline figure. Refinancing (switching to a new loan, often with a different lender) can lower your rate or access new features, but factor in discharge fees, new application fees, and the time cost of switching before assuming it's worthwhile.
Practical checklist
Before choosing a loan structure
- Compare the comparison rate, not just the advertised interest rate
- List which features (offset, redraw, extra repayments) you'll actually use
- Check what a fixed or introductory rate reverts to once the initial period ends
- Ask what break, discharge or redraw fees apply if your plans change
Relevant Delora tool
Questions for a professional
- What is the comparison rate, and what fees does it include that the headline rate doesn't?
- What does this rate revert to after any fixed or introductory period ends?
- Which features are included by default, and which cost extra?
- What would it cost me to switch lenders later if a better rate becomes available?
Official resources
Sources and methodology
- Choosing a home loan — ASIC (Moneysmart) (retrieved 29 Jul 2026)
Figures on this page are drawn from Delora's local knowledge graph, refreshed from these primary sources and checked for changes on a regular schedule. If a figure here looks out of date, the official source above is always the authority — please let us know.