Everything You Need to Know About Variable Rate Loans

Understanding Variable Rate Loans for First Home Buyers

If you're buying your first home in Wantirna, you've probably heard about variable interest rates and wondered if they're the right choice for you. As a first home buyer, understanding your home loan options is crucial to making an informed decision that suits your financial situation.

A variable interest rate means your interest rate can move up or down during the life of your loan, depending on market conditions and your lender's decisions. While this might sound unpredictable, variable rate loans come with features that can give you flexibility and potential savings that fixed interest rate loans typically don't offer.

Let's explore the key features of variable rate loans and how they might benefit you as a first home buyer.

Key Features of Variable Rate Home Loans

Offset Account Benefits

One of the most valuable features of a variable rate loan is an offset account. This is a transaction account linked to your home loan where any balance you hold offsets the amount of interest you pay on your mortgage.

For example, if you have a $400,000 home loan and $20,000 in your offset account, you'll only pay interest on $380,000. Your money in the offset account remains accessible for everyday expenses, emergencies, or future plans while simultaneously reducing your interest payments.

This feature can save you thousands of dollars over the life of your loan and help you pay off your first home loan faster.

Redraw Facilities

Another helpful feature is a redraw facility, which allows you to access any extra repayments you've made on your loan. If you've been making additional payments during periods when you had surplus income, you can redraw those funds if you need them for unexpected expenses or opportunities.

This provides financial flexibility while still allowing you to reduce your loan balance faster when you can afford to make extra repayments.

Making Extra Repayments Without Penalties

Most variable rate loans allow you to make unlimited extra repayments without incurring fees or penalties. This is a significant advantage for first home buyers who might receive bonuses, tax returns, or other windfalls throughout the year.

By making additional repayments when you can, you'll:

• Reduce the principal amount owing on your loan
• Pay less interest over the life of your home loan
• Potentially shave years off your loan term
• Build equity in your property faster

This flexibility is particularly valuable as your income grows throughout your career or if you receive unexpected funds like inheritance, work bonuses, or first home buyer grants.

Understanding Interest Rate Movements

While variable interest rates can fluctuate, this isn't necessarily a disadvantage. When the Reserve Bank of Australia reduces the cash rate, lenders often pass on interest rate discounts to variable rate borrowers, meaning your repayments could decrease.

It's worth noting that during your home loan application process, lenders assess your borrowing capacity using a buffer rate that's higher than the actual interest rate. This means you're already being assessed on your ability to handle rate increases.

Many first home buyers in Wantirna choose to work with a mortgage broker in Wantirna who can help monitor rate movements and identify opportunities to refinance or negotiate better rates with your existing lender.

Combining Variable Rate Features with Low Deposit Options

As a first home buyer, you might be exploring low deposit options such as:

• The First Home Loan Deposit Scheme, which allows eligible buyers to purchase with a 5% deposit
• Regional First Home Buyer Guarantee programs
• 10% deposit options with Lenders Mortgage Insurance (LMI)
• Using a gift deposit from family members

The good news is that variable rate loans with their flexible features are available across these different deposit scenarios. Even if you're applying with a smaller deposit, you can still access offset accounts and redraw facilities on many variable rate products.

Structuring Your First Home Loan

When you apply for a home loan, you're not limited to choosing only variable or fixed. Many first home buyers opt for a split loan structure, where part of the loan is on a variable interest rate and part is on a fixed interest rate. This approach provides:

• Certainty on a portion of your repayments through the fixed component
• Flexibility and feature access through the variable component
• Protection against significant rate rises
• Opportunity to benefit from rate decreases

Your first home loan application should reflect your personal circumstances, risk tolerance, and financial goals.

First Home Buyer Eligibility and Support

Before diving into loan features, ensure you understand your first home buyer eligibility for various government schemes and concessions. These might include:

• First home owner grants (FHOG) depending on your state and whether you're building or buying
• First home buyer stamp duty concessions that can save you thousands
• First Home Super Saver Scheme to boost your deposit
• Various state-based assistance programs

Having a first home buyer checklist helps ensure you're maximising available support when buying your first home. The team at Mobile Mortgage Solutions can guide you through these options during your first home loan application.

Creating Your First Home Buyer Budget

Before choosing between variable and fixed options, establish a realistic first home buyer budget that includes:

• Your maximum comfortable monthly repayment amount
• Upfront costs like stamp duty and conveyancing fees
• Ongoing costs including rates, insurance, and maintenance
• A buffer for interest rate increases
• Lifestyle expenses and emergency savings

Variable rate loans with offset accounts can help you manage your budget more effectively by keeping your savings accessible while reducing interest costs.

Getting Pre-Approval

Once you've explored your home loan options and decided on the features that matter most to you, obtaining pre-approval is your next step. Pre-approval gives you:

• Confidence when making offers on properties
• A clear understanding of your borrowing capacity
• Time to find the right property without pressure
• A head start on the settlement process

Mobile Mortgage Solutions can assist with your pre-approval, ensuring you understand all the variable rate features available and how they align with your financial goals.

As a first home buyer in Wantirna, understanding variable interest rate features gives you the knowledge to make informed decisions about your home loan. The flexibility of extra repayments, the savings potential of offset accounts, and the accessibility of redraw facilities make variable rate loans worth considering as part of your home loan options.

Call one of our team or book an appointment at a time that works for you to discuss how variable rate loan features can work for your first home purchase.