Loan Structure: What Not to Do When Setting Up

The structure you choose when setting up your home loan determines how you'll build equity, manage repayments, and refinance down the line.

Most borrowers focus on the interest rate and skip the conversation about structure entirely. They end up with a single variable loan because it's what the lender defaulted to, then realise two years later they needed an offset account, or they wanted to fix part of the rate, or they're trying to pull equity for a deposit on an investment property and the loan wasn't set up to allow it. The structure you lock in at settlement shapes what you can do with the loan for years afterward, and changing it later often means refinancing.

Don't Default to a Single Variable Loan Just Because It's Standard

A single variable loan is the default structure most lenders will offer, but it's rarely the right long-term option. In a scenario where a Mandurah borrower takes out a loan to purchase near the estuary and keeps everything in one variable loan, they're exposed to rate movements on the full balance, they can't lock in a portion if rates start climbing, and they can't isolate equity for future borrowing without refinancing the entire loan. If they want to buy an investment property in a few years, they'll need to refinance to split the loan and separate the owner-occupied portion from the investment portion. That refinancing costs time, valuation fees, and sometimes discharge fees depending on the lender.

A split loan structure divides your borrowing across multiple accounts from the start. You might put 50% into a variable loan with an offset account and 50% into a fixed rate loan, or you might split it three ways depending on your circumstances. Each portion operates independently. You can fix one part to protect against rate increases, keep another variable to take advantage of rate cuts, and attach an offset account to the variable portion to reduce interest on your everyday savings. When you need to access equity later, you can refinance just one split without touching the others.

Interest-Only Repayments Are Useful in Specific Situations, Not for Reducing Monthly Costs

Interest-only repayments mean you're only paying the interest charged each month and not reducing the loan balance. Some borrowers assume this is a way to make ownership more affordable, but it doesn't build equity, and when the interest-only period ends, your repayments jump because you're now paying off the full loan balance over a shorter timeframe.

Interest-only works when you're holding a property for capital growth and using the cash flow elsewhere, or when you're managing a construction loan and don't want to pay principal until the build is complete. Consider a borrower purchasing an investment property in Halls Head who plans to sell within five years. They take out an interest-only loan, keep repayments lower while holding the asset, then sell and repay the loan from the sale proceeds. The structure matched the strategy. If that same borrower had used interest-only on an owner-occupied home with no exit plan, they'd reach the end of the interest-only period with no equity built, higher repayments ahead, and limited options to refinance if their circumstances had changed. The loan structure needs to match what you're actually doing with the property.

Fixed Rate Loans Lock in Certainty but Remove Flexibility You Might Need

A fixed interest rate protects you from rate rises for a set period, usually between one and five years. Your repayment stays the same regardless of what happens in the market. That certainty is valuable if rates are climbing or if you're budgeting tightly and can't absorb an increase. But fixed rate loans come with restrictions. Most lenders cap extra repayments at around $10,000 to $20,000 per year during the fixed period. If you want to pay down the loan faster, you'll be limited. If you need to refinance or sell before the fixed period ends, you'll pay break costs, which can run into thousands of dollars depending on how much rates have moved since you locked in.

In our experience, borrowers near the Mandurah foreshore who fix their entire loan at the peak of a rate cycle often regret it when rates drop six months later and they're still locked in at the higher rate with no way out. A split loan structure lets you fix part of your borrowing for stability and keep the rest variable so you can make extra repayments, access a redraw facility, or refinance one portion without triggering break costs on the whole loan. If you're going to fix, do it on a portion of the loan, not the full balance.

Offset Accounts Only Work if You Actually Use Them

An offset account is a transaction account linked to your home loan. The balance in the offset reduces the loan balance used to calculate interest, so if you have a $400,000 loan and $20,000 sitting in your offset, you're only charged interest on $380,000. The offset balance is fully accessible, so it's not locked away like a redraw.

The mistake is paying an annual fee for an offset account and then leaving it empty. If you're not consistently keeping savings in the offset, you're paying for a feature you're not using. Offset accounts are worth the fee when you're parking your salary, tax savings, or an emergency fund in the account and letting it reduce your interest every day. If you spend everything you earn and the offset sits at zero, you'd be better off with a no-frills variable loan and a lower rate. The structure only works if your behaviour matches the feature.

Don't Set Up Your Loan Based on Today's Situation if You Know It's Going to Change

Most borrowers set up their loan based on what they need right now and assume they'll deal with changes later. But if you know you're planning to turn your home into an investment property in two years, or you're expecting a pay rise and want to make extra repayments, or you're planning to buy again and need to access equity, those future plans should shape the structure you set up today.

Loan structures are harder to change once the loan is live. Splitting a loan after settlement usually means refinancing, which involves another application, another valuation, and another round of serviceability checks. If your income has dropped or your expenses have increased, you might not qualify to refinance at all. Setting up the right structure from the beginning means you're not locked in when your circumstances shift. If you're borrowing in Mandurah and you think there's any chance you'll buy an investment property, expand the home, or rent it out in the next few years, talk through those scenarios before you settle. The loan structure can be built to accommodate them.

Portable Loans Let You Take the Loan With You, But Not Every Lender Offers Them

A portable loan allows you to transfer your existing loan to a new property without refinancing. If you sell your home and buy another one, you can take the loan with you and avoid discharge fees, application fees, and the risk of requalifying under tighter lending criteria. This feature is uncommon but worth asking about if you're likely to move within a few years.

Most Mandurah borrowers don't realise portability exists because it's not widely advertised and not all lenders offer it. If you're buying a first home and you expect to upgrade in three to five years, a portable loan structure means you can sell, buy, and keep the same loan without starting from scratch. It's particularly useful if you've locked in a low rate and don't want to lose it when you move. If portability matters to you, it needs to be part of the conversation when you're comparing home loan options at application stage, not discovered later when you're ready to sell.

The structure you choose at settlement shapes how your loan performs over the life of the borrowing. If you're setting up a new loan or thinking about whether your current structure still works, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions