Proven tips to choose the right loan structure

Your loan structure determines whether you can pay off your home faster or adjust repayments when circumstances shift.

Kenmore borrowers often hold substantial equity in established properties around Brookfield Road and the western side of Moggill Road, but that equity only works for you if the loan sitting behind it is structured to match how you actually live and earn. A structure that suits a household with stable dual income and no plans to invest will look completely different to one designed for someone expecting a career break or planning to buy a second property within five years.

Should You Fix Part of Your Home Loan or Keep It All Variable?

A split loan lets you lock in a portion of your borrowing at a fixed rate while keeping the remainder variable. In our experience, clients who split their loans typically fix between 40% and 60% of the total amount, giving them predictable repayments on the fixed portion and full flexibility on the variable portion. The variable portion can be paid down faster, linked to an offset account, or redrawn if needed.

Consider a buyer refinancing a Kenmore property who owes $520,000. Fixing $300,000 for three years gives certainty on most of the debt, while the remaining $220,000 stays variable and gets linked to an offset account holding savings and rental income from a previous property. That variable portion can be reduced aggressively without triggering break costs, and the offset account reduces interest on every dollar sitting in it. When the fixed term ends, the borrower can reassess and either refix, move everything to variable, or adjust the split based on what rates are doing at that time.

The alternative is fixing the entire amount, which removes all flexibility for the fixed period, or staying fully variable, which leaves you exposed to rate rises but gives you complete control over extra repayments and access to features like offset accounts and redraws.

Principal and Interest or Interest-Only: Which Builds Equity Faster?

Principal and interest repayments reduce your loan balance with every payment and build equity from day one. Interest-only repayments keep your loan balance unchanged and only cover the interest cost, which means you build equity solely through property value growth, not through debt reduction.

For an owner-occupied home loan, principal and interest is the default structure because it reduces what you owe and improves your equity position over time. For investment properties, interest-only can make sense in the short term because it keeps repayments lower and maximises the tax-deductible interest component, but it does nothing to reduce the debt itself.

As an example, a Kenmore investor holding a property near Kenmore Village might choose interest-only for the first five years to keep cash flow manageable while they focus on paying down their owner-occupied loan faster. Once the owner-occupied debt is cleared, they switch the investment loan to principal and interest and start reducing that balance. The structure matches the financial priority at each stage rather than locking them into one approach for the life of the loan.

Interest-only periods typically run for one to five years, and at the end of that period the loan reverts to principal and interest unless you apply to extend it. Lenders assess extensions based on your current financial position and the loan to value ratio, so it's not automatic.

How an Offset Account Changes What You Pay

An offset account is a transaction account linked to your home loan that reduces the interest you're charged based on the balance sitting in it. If you owe $400,000 and have $30,000 in a linked offset, you only pay interest on $370,000. The $30,000 still belongs to you and can be accessed anytime, but while it's sitting in the offset it's working to reduce your interest cost every day.

Offset accounts only work with variable rate loans or the variable portion of a split loan. If you fix your rate, you lose access to an offset on that fixed portion. That's one reason why many Kenmore borrowers choose to keep at least part of their loan variable even if they fix the majority.

A household with two incomes and irregular expenses might run all income through the offset account and pay bills and living costs from it throughout the month. Every dollar that sits in the account between pay cycles reduces the interest charged on the loan. Over a year, that can mean thousands of dollars in saved interest without making any extra repayments or locking funds away.

Some lenders charge a monthly fee for offset accounts, others bundle them into a package that includes rate discounts and fee waivers. The value depends on how much you typically hold in the account and whether the interest saving outweighs any fees.

Portable Loans and Refinancing: When Structure Needs to Move With You

A portable loan allows you to transfer your existing loan to a new property without breaking the contract or paying discharge fees. Not all lenders offer portability, and even when they do, it's not always straightforward if you're upsizing or changing loan amounts.

If you're planning to sell and buy again within a short timeframe, particularly in a suburb like Kenmore where buyers often trade up from a townhouse near Kenmore State School to a larger home on acreage closer to Moggill, portability can save you from paying break costs on a fixed rate or losing a discounted variable rate you negotiated previously.

That said, portability often gets less attention than it deserves because refinancing to a new lender at the time of purchase can deliver a lower rate or improved structure that outweighs the cost of breaking the old loan. If rates have dropped or your financial position has improved since you first borrowed, switching lenders might give you access to features or pricing that weren't available when you originally applied.

When Redraw and Extra Repayments Actually Matter

A redraw facility lets you access extra repayments you've made above the minimum required amount. If your monthly repayment is $2,800 and you pay $3,200 each month, the extra $400 reduces your loan balance and can be redrawn later if you need it. Redraw is common on variable loans but rarely available on fixed rate loans.

Redraw differs from an offset account because the money you pay in actually reduces your loan balance, which lowers the interest you're charged. With an offset, the money stays in a separate account and your loan balance doesn't change. Both reduce interest, but redraw requires you to formally withdraw funds if you need them back, and some lenders restrict how often you can redraw or charge a fee each time.

If you're disciplined about paying extra and don't need frequent access to those funds, redraw works well and is often available without any account fees. If you want flexibility and regular access to your surplus cash, an offset account suits better even if it comes with a small monthly cost.

Fixed Terms and Break Costs: What Happens If You Need to Change

When you fix your rate, you're locked into that rate for the agreed term, which is typically between one and five years. If you need to pay out the loan early, switch to a different structure, or make large extra repayments beyond the allowed amount, the lender may charge break costs to compensate for the difference between the rate you're paying and the rate they can now lend that money at.

Break costs only apply if rates have fallen since you fixed. If rates have risen, there's usually no break cost because the lender can re-lend your money at a higher rate than you're paying. Break costs can run into thousands of dollars depending on how much you owe, how long is left on your fixed term, and how far rates have moved.

That's why fixed rate loans typically allow some extra repayments each year, usually up to $10,000 or $20,000 depending on the lender, without triggering a break cost. If you plan to make larger extra repayments or think you might sell or refinance within the fixed term, keeping at least part of your loan variable avoids that risk.

If your situation changes and you need to exit a fixed loan early, speaking with your lender or broker about the timing can sometimes reduce the break cost. Small changes in timing or structure can make a material difference to what you'll pay.

Call one of our team or book an appointment at a time that works for you to discuss which loan structure fits your situation and how to set it up properly from the start.

Frequently Asked Questions