New to home loans & interest rates? Start here

Looking at getting a home loan and your own property really does make you realise you’re nearly all grown up.

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Not only do you need to be accepted by a lender, you then need to decide how you want to repay your loan and what type of interest rate structure you’ll use to do it.

Home loan types

The table below gives an overview of different loan types, but you can work with your lender to tailor a package that works best for you, e.g. it might suit you to have the bulk of your loan as a fixed-interest table loan and a small amount on variable-interest revolving credit.

Table loan

  • Regular payments occur each fortnight/month. If you’ve chosen a fixed interest rate you can factor the amount of these repayments with certainty.
  • Table loans are calculated over the term of your loan and you’ll start off by paying mostly interest first (later payments will mostly be the principal amount of the loan).

Revolving credit

  • Your loan acts like a giant overdraft. Your pay goes into the revolving credit account, reducing the amount of interest you’ll pay that month.
  • You can make lump sum repayments or easily withdraw money back up to your limit (for that emergency shopping trip to Melbourne), but if you’re committed to the cause you’ll see exactly how much your loan amount is reducing.
  • If you’re terrified of seeing a bank balance that shows a big negative and lots of zeros, revolving credit may not be for you.
  • The fact you can easily withdraw money back to your total available amount could mean you don’t  pay off your home loan as quickly – or all if you’re a bit of a spender.

Reducing loan

  • You repay the same amount of principal with every interest payment, so you end up paying less interest overall.
  • As your interest payments will be high to begin with, your initial payments will likely be much higher than with a table loan.


  • Lower repayments which enable you to use spare cash for other things such as renovations etc.
  • Unless you make lump-sum payments on your interest-only loan you won’t be paying off the principal at all.

Linked account

  • Several banks offer a linked-account bundle that factors in the value of all your transaction and savings accounts before calculating interest on the remaining value of your loan. You only pay interest on a net value, which is great if you have savings or other cash sums available.
  • While the total interest amount is lower, it’s calculated at a floating rate – which is generally higher than a fixed-term rate.

Interest rates

Just like different home loan types, you can also spread your risk by splitting your mortgage into different interest packages, and have one loan on fixed interest (for regular certainty of payment amounts) and another on floating (to take advantage of any cuts in interest rates). Talk with your lender to see what works best for you.

Fixed interest

  • You know exactly how much your loan repayments will be throughout the loan’s term.
  • If you’re expecting interest rates to rise, you can lock in a fixed rate to avoid paying higher interest.
  • You can take advantage of special deals on interest rates on offer.
  • If interest rates take a dive, you’re stuck on a higher rate until you come to the end of your existing fixed-interest term or decide to break your loan.
  • If you sell your home and don’t transfer your existing home loan to another property, you’ll likely be charged a break fee.
  • You might be limited in the number/amount of lump-sum repayments you can make against your fixed-interest loan. Check with your lender for details.


  • You can take advantage of any cuts in interest rates.
  • You have more ability to make lump-sum payments on your home loan.
  • Interest rates can be higher than fixed rates.
  • If the markets suddenly dive, your interest rate can rise overnight.

This information is not intended as a complete guide, as it doesn’t consider your individual needs or financial situation. Trade Me accepts no responsibility or liability for any inaccuracies or omissions in the content. Always obtain independent legal advice before buying or selling property.