Structuring Your Home Loan: Core Principles for Borrowers

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Understanding Core Repayment Types

When establishing a mortgage, the primary structural decision is choosing between a principal and interest (P&I) loan and an interest-only arrangement. Most borrowers select principal and interest loans, where regular repayments cover both the amount borrowed and the accrued interest over an agreed term, such as 30 years [0]. [1]

Alternatively, interest-only loans limit initial repayments to the interest accrued for a set duration, commonly up to five years [6]. While initial payments are lower, debt does not reduce during this window, and repayments increase significantly once the principal-repaying phase begins [0, 6]. [1] [7]

Evaluating Loan Terms and Interest Structures

The length of your loan term directly affects repayment sizing and total interest costs. Selecting a shorter term, such as 25 years, requires higher regular instalments but reduces overall interest paid compared to a standard 30-year term [0]. [1]

Borrowers must also weigh fixed versus variable interest rates. Fixed rates lock in repayments for a set period, protecting against market fluctuations, whereas variable rates move up or down based on lender decisions and broader economic conditions [0, 1]. Split loans offer a hybrid structure by combining fixed and variable portions [0]. [1] [2]

Assessing Mortgage Features Wisely

Optional mortgage features such as offset accounts, redraw facilities, or line of credit options can help reduce interest by allowing extra funds to sit against the principal balance [0]. However, these additions often carry higher costs or fees [0]. [1]

It is essential to distinguish between 'must-haves' and 'nice-to-haves' [0]. For instance, an offset account only delivers meaningful savings if substantial average balances are maintained; otherwise, a basic loan structure with fewer features may be more cost-effective [0]. [1]

Using Key Fact Sheets for Direct Comparison

To compare loan products accurately, borrowers can request a standardised Key Fact Sheet from lenders or brokers [0]. This document presents consistent layouts across institutions for specific loan amounts, detailing initial interest rates, personalised comparison rates, establishment fees, and ongoing administrative charges [0]. [1]

Reviewing these metrics alongside crucial loan conditions—such as redraw rules, extra repayment limits, and potential break costs—ensures a comprehensive comparison before committing to a mortgage product [0]. [1]

Refinancing and Transfer Considerations

Reviewing existing loans periodically helps ensure your mortgage remains competitive, particularly as fixed periods expire or market conditions shift [1, 6]. Engaging with your current lender or exploring external options can reveal opportunities for better pricing [1, 6]. [2] [7]

When evaluating a switch, borrowers must account for all associated expenses, including application fees, discharge costs, potential fixed-rate break fees, and lenders mortgage insurance (LMI) if equity sits below 20 percent [1]. Ensuring that overall savings outweigh transition costs is a vital step in loan management [1]. [2]

NSW Property Duty Obligations

Property buyers in New South Wales must factor transfer duty (commonly known as stamp duty) into their upfront financial preparation when acquiring real estate [5]. Depending on buyer status, such as first-home buyer eligibility, various exemptions or concessions may apply under specific state schemes [8]. [6] [9]

Additionally, foreign purchasers acquiring residential-related property in NSW should verify whether surcharge purchaser duty applies to the transaction, as state legislative rules govern these additional liabilities [5, 9]. [6] [10]

Discuss your next step with SBS Lending

Speak with SBS Lending about your circumstances and lending options. Contact SBS Lending or call (02) 8776 8446.

General information only, current at 7 October 2026. This is not personal financial, tax or legal advice. Lending criteria, rates and government programs can change. Approval is subject to lender assessment. Consider your circumstances and seek appropriate professional advice.

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