Avoid These Variable Rate Loan Fees When Buying Your Home

Understanding Variable Rate Loans for First Home Buyers

When buying your first home in Lalor, VIC, understanding the various fees and costs associated with variable rate loans is crucial. Variable interest rate loans can offer flexibility and potential savings, but they also come with expenses that can catch first home buyers off guard.

A variable interest rate means your repayments can change throughout the life of your loan based on market conditions. While this can work in your favour when rates decrease, it also means being prepared for potential increases. For first home buyers working within a first home buyer budget, knowing all associated costs upfront helps avoid financial surprises.

Common Fees Associated with Variable Rate Loans

When you apply for a home loan with a variable interest rate, several fees typically apply:

Application Fees: Many lenders charge an initial fee to process your first home loan application. These can range from a few hundred to over $1,000 Australian dollars.

Valuation Fees: Lenders require a professional valuation of the property you're purchasing. This cost usually falls on the borrower and can be several hundred dollars.

Settlement Fees: These cover the administrative costs of finalising your home loan and typically range from $150 to $400.

Legal Fees: You'll need conveyancing or legal services to handle the property transfer, which can cost between $800 and $2,500 depending on the complexity.

Lenders Mortgage Insurance (LMI): If you're borrowing more than 80% of the property value - common with low deposit options like a 5% deposit or 10% deposit - you'll likely pay LMI. This can add thousands to your costs.

Ongoing Costs to Consider

Beyond the initial fees when you apply for a home loan, variable rate loans may include ongoing charges:

Monthly Account Keeping Fees: Some lenders charge monthly fees to maintain your loan account, ranging from $10 to $30 per month.

Annual Package Fees: If you've chosen a packaged loan product, you might pay an annual fee of several hundred dollars.

Redraw Fees: While many variable rate loans include a redraw facility allowing you to access extra repayments, some lenders charge for this service. Each redraw might cost $20 to $50.

Offset Account Fees: An offset account can significantly reduce your interest costs by offsetting your savings against your loan balance. However, some lenders charge monthly fees for this feature.

Hidden Costs First Home Buyers Often Miss

When reviewing your first home buyer checklist, don't overlook these less obvious expenses:

Rate Lock Fees: If you want to secure your variable interest rate for a short period during settlement, some lenders charge a fee.

Discharge Fees: Should you decide to refinance or pay off your loan early, discharge fees typically range from $150 to $400.

Switching Fees: Some lenders charge if you want to switch from a variable interest rate to a fixed interest rate during your loan term.

Additional Repayment Fees: While most variable rate loans allow unlimited extra repayments without penalty, always confirm this in your loan contract.

Government Schemes and Fee Reductions

First home buyers in Lalor may be eligible for schemes that reduce overall costs:

The First Home Loan Deposit Scheme allows eligible first home buyers to purchase with a smaller deposit without paying Lenders Mortgage Insurance (LMI). This can save tens of thousands of dollars.

The first home super saver scheme lets you save for a home loan deposit through your superannuation, potentially reducing the time needed to save.

First home buyer stamp duty concessions in Victoria can significantly reduce upfront costs. First home owner grants (FHOG) may also be available depending on whether you're building or buying an established home.

The Regional first home buyer Guarantee provides similar benefits to the First Home Loan Deposit Scheme for properties in regional areas.

Comparing Variable Rate Loan Costs

When evaluating Home Loan options, request a comparison rate from each lender. This rate includes most standard fees and charges, giving you a more accurate picture of the true cost.

Consider these factors when comparing:

1. The base variable interest rate
2. All establishment and ongoing fees
3. Whether interest rate discounts apply
4. The features included (offset account, redraw facility)
5. Any fee waivers or introductory offers
6. The reputation and service quality of the lender

Don't automatically choose the loan with the lowest advertised rate. A slightly higher interest rate with minimal fees and useful features may cost less overall than a loan with a lower rate but high charges.

Preparing Your First Home Buyer Budget

Before you submit your Home Loan application, create a comprehensive budget that includes:

Upfront Costs:

• Deposit amount (whether using gift deposit, savings, or first home super saver scheme funds)
• LMI if applicable
• Application and valuation fees
• Legal and conveyancing costs
• Building and pest inspections
• First home buyer eligibility assessment costs

Ongoing Costs:

• Regular loan repayments
• Account keeping fees
• Property-related expenses (rates, insurance, maintenance)
• Potential interest rate increases

The Value of Pre-Approval

Obtaining pre-approval for your first Home Loan provides clarity on what you can borrow and helps you understand the fees involved before committing to a property purchase. The pre-approval process typically involves:

• Assessment of your income and expenses
• Credit history check
• Verification of your first home buyer eligibility
• Confirmation of applicable fees and charges
• Review of available Home Loan options

This information strengthens your position when making offers and helps avoid disappointment.

Loan Features That Add Value

While some features come with fees, they can provide substantial benefits:

Offset Accounts: Despite potential monthly fees, an offset account can save significantly more in interest than the fee costs. If you maintain a healthy balance, this feature often pays for itself many times over.

Redraw Facilities: The ability to access extra repayments provides financial flexibility for emergencies or opportunities. Even if redraw fees apply, having this option adds security.

Flexible Repayment Options: Making additional repayments without penalty can reduce your loan term and total interest paid substantially, potentially saving tens of thousands of dollars over the life of your loan.

Working with Simple Lending in Lalor

Understanding variable rate loan fees and costs requires expertise and market knowledge. As mortgage brokers for first home buyers, Simple Lending can help you:

• Compare Home Loan options from multiple lenders
• Identify loans with minimal fees and maximum value
• Understand your first home buyer eligibility for various schemes
• Access interest rate discounts not available to direct applicants
• Navigate the first home loan application process efficiently
• Review the fine print to avoid unexpected charges

With the right guidance, first home buyers can secure variable rate loans that balance affordability with valuable features, ensuring your first Home Loan supports your financial goals both now and into the future.

Call one of our team or book an appointment at a time that works for you to discuss your home loan options and ensure you're not paying unnecessary fees on your variable rate loan.