How to Pick a Home Loan Structure That Suits Your Work

Your loan structure matters as much as your rate. It decides how your repayments behave, how much flexibility you get and what you pay if your plans change. For a tradie with lumpy income, the structure is often the bigger decision.

This article covers the main structure options for an owner occupied home loan, with the trade-off of each one. If you want the full picture of what we do, start with our home loans for tradies page.

Variable Rate or Fixed Rate: Which Suits You?

A variable rate moves when your lender changes it, while a fixed rate locks your rate for a set period. Variable gives you flexibility. Fixed gives you certainty.

With a variable rate, repayments can go up or down. Variable loans usually let you make extra repayments and use an offset account. The trade-off is that your repayments can rise when rates rise.

With a fixed rate, you know your repayment for the fixed term. The trade-off is that extra repayments are often capped, and leaving early can trigger break costs. When the fixed term ends, your loan moves to the lender's then-current rate, which may be higher. Our fixed rate expiry page explains what to do before that happens.

How Does a Split Rate Loan Work?

A split rate loan divides your loan into two parts, with one part fixed and the other variable. You choose the proportion, such as half and half.

The fixed part gives you a repayment you can plan around. The variable part lets you make extra repayments and hold an offset account. The trade-off is that you get a bit of both, so you miss the full benefit of either one. If rates fall, only the variable part follows them down. If rates rise, only the fixed part is protected.

Here is an illustrative example. Consider a sparky with a $600,000 loan who splits it into $300,000 fixed and $300,000 variable. We will use an illustrative rate of 6.75% p.a. on both parts and a 30 year term. Interest alone on the whole loan at 6.75% is about $40,500 a year, or around $3,375 a month. Principal and interest repayments over 30 years on $600,000 at that rate come to roughly $3,891 a month. Half of that sits on each part, so about $1,945 a month each. In a scenario like this, the sparky puts spare cash from busy months into the variable half. The fixed half stays steady while the variable half drops faster. The result is a repayment he can budget for and a pool he can top up when work is strong.

Offset Account or Redraw: Where Should Spare Cash Sit?

An offset account is a transaction account linked to your loan, and the balance in it reduces the amount you pay interest on. A redraw facility lets you pull back extra repayments you have already made.

For a tradie, an offset suits holding tax money, GST and slow-month buffers. If you have $30,000 sitting in offset, you pay interest on $30,000 less, while the cash stays accessible. The trade-off is that loans with a full offset can carry a higher rate or an annual package fee, depending on the lender. Check whether the offset is 100% or partial.

If you run a business, keep your business funds separate from your home loan offset. Speak with your accountant about how to set that up.

Principal and Interest or Interest Only?

With principal and interest, each repayment reduces your loan balance and covers interest. With interest only, you pay just the interest for a set period, so your balance does not fall.

Interest only repayments are lower at first, but only for the interest only period. Once that period ends, you pay principal and interest over the shorter remaining term, so repayments step up. Using the illustrative 6.75% p.a. rate on a $600,000 loan over 30 years, five years of interest only would be about $3,375 a month. After that, principal and interest over the remaining 25 years would be roughly $4,145 a month.

The trade-off is clear. You build no equity through repayments in that period, and you pay more interest overall. You can read more on our interest only loans for tradies page. Owner occupiers should treat it as a short-term tool, not a long-term plan.

What Loan Features Are Worth Paying For?

A feature is worth paying for only if you will use it. Offset, redraw, extra repayments and portability suit some tradies but add cost for others.

A portable loan lets you move your loan to a new property without starting from scratch. It can save on fees if you sell and buy again, but not every lender offers it. Package fees often bundle features together, and you can ask whether a rate discount outweighs the annual fee. Compare the total cost, not just the headline rate. Our getting a lower interest rate page covers how rate discounts work.

One more consideration is your deposit. A smaller deposit means a higher loan to value ratio, and some lenders charge Lenders Mortgage Insurance (LMI) at higher LVRs. Our low deposit loans for tradies page covers the options.

Why Structure Matters When Your Income Moves

If your income swings, pick a structure that gives you room in slow months and lets you get ahead in busy ones. A variable or split loan with an offset often does that.

Lenders assess self-employed tradies differently from PAYG workers, which can affect your loan amount. Our finance for tradies page explains how we work with lenders across Australia, and our borrowing capacity page shows what affects how much you can borrow.

Use a repayment calculator to test different structures with your own numbers before you apply for a home loan.

Call one of our team or book an appointment at a time that works for you. We will go through your income, your plans and the structures that fit, then compare lenders for you.

Frequently Asked Questions