Published on 17 March 2016

Types Of Interest Rates

The path to securing your loan or credit can seem like an enormously challenging one. This is particularly true for those who have never applied for a loan/credit before. When you consider the list of types of interest rates alone, it’s easy to become a little frustrated.

Nonetheless, the more you understand now, the easier the loan process will be for you. This thought can certainly be extended towards the different types of interest rates that are available to you. But remember – your YFG Lending Specialist is there to help you navigate through all of the options and find the best one for you!

Which Interest Rate Is Right For Me?

Regardless of the interest rate you choose, it’s important to understand that interest rates are responsible for determining how much your loan is going to cost you. It will also determine what you are required to repay each month. The slightest difference to interest rates can play a significant role in how your repayments are determined.

With that thought in mind, here are the different types of interest rates you are going to come across:

  • Principle and Interest (P&I): With this interest type, the loan payment will cover your interest charge, in addition to a portion of your original loan amount. This will reduce your loan balance, over the course of the life of your loan.
  • Interest Only: You’re going to agree to pay your interest charges for an agreed upon period of time. This is usually five years. With most loans, you’re going to find yourself reverting to P&I after a certain period.
  • Variable Home Loans: You’ll note that the interest rate charged will move up and down in sync with various indicators, generally your Reverse Bank Cash Rate. If this rate increases, you can expect increases to the home loan rate by roughly the same amount.
  • Fixed Interest Rate Home Loans: This loan type is going to lock you into an interest rate for a specific period of time. This period is generally anywhere between one to five years, although some people pursue options that allow the period to extend.
  • Partially-Fixed Rate: Also known as a split loan, this option will allow you to pay a fixed rate for a certain portion of time, followed by a variable rate for the rest of the life of your loan.
  • Introductory Rates: Also known as honeymoon rates, an introductory rate generally involves a lender giving you low interest rates for the first year or two of your loan.


These are the main loan types that you are going to need to learn more about. As always we recommend speaking to your YFG Lending specialist.

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