Understanding Variable Rate Loans for First Home Buyers
When buying your first home in Byford, choosing the right home loan can feel overwhelming. Variable interest rate loans are a popular option among first home buyers, but understanding all the fees and costs involved is crucial for setting a realistic first home buyer budget.
A variable interest rate moves up and down based on market conditions and lender decisions. While this means your repayments can change over time, variable rate loans often come with features that can help you pay off your loan faster and manage your money more effectively.
Types of Fees Associated with Variable Rate Loans
When you apply for a home loan, you'll encounter various fees beyond just the interest rate. Understanding these costs helps you compare different home loan options accurately.
Application and Establishment Fees
Most lenders charge an application fee when you submit your first home loan application. This typically ranges from $250 to $600 and covers the lender's administrative costs. Some lenders may waive this fee as part of promotional offers or to attract first home buyers.
Establishment fees (also called setup fees) can cost anywhere from $0 to $1,000. These cover the cost of setting up your loan once approved.
Valuation Fees
Lenders need to know the property's value before approving your loan. Valuation fees typically cost between $200 and $400, though this can vary depending on the property's location and value. Some lenders include this cost in their establishment fee.
Lenders Mortgage Insurance (LMI)
If you're applying with a low deposit, such as a 5% deposit or 10% deposit, you'll likely need to pay Lenders Mortgage Insurance. This protects the lender if you're unable to make your repayments.
LMI can cost thousands of dollars and is typically calculated as a percentage of your loan amount. However, first home buyers may be eligible for the First Home Loan Deposit Scheme, which can help you avoid this cost even with a smaller deposit.
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Ongoing Costs and Monthly Fees
Beyond the upfront costs, variable rate loans come with ongoing fees that affect your budget over the life of your loan.
Monthly Account Fees
Many lenders charge a monthly account keeping fee, typically between $10 and $15 per month. Over a 30-year loan, this can add up to $5,400, so it's worth considering when comparing lenders.
Annual Package Fees
Some lenders offer home loan packages that bundle several products together, often providing interest rate discounts or other benefits. These packages usually come with an annual fee ranging from $300 to $400.
While the annual fee might seem high, the interest rate discounts can save you significantly more over time, making it worthwhile for many first home buyers.
Features That Add Value to Variable Rate Loans
Variable rate loans typically offer more flexibility than fixed interest rate loans, which can help you pay off your mortgage faster.
Offset Account Benefits
An offset account is a transaction account linked to your home loan. The balance in this account offsets the amount you owe on your mortgage when calculating interest. For example, if you have a $400,000 loan and $20,000 in your offset account, you'll only pay interest on $380,000.
Some lenders charge a monthly fee for an offset account (usually $10 to $20), but the interest savings often outweigh this cost.
Redraw Facility
A redraw facility lets you access extra repayments you've made on your loan. This provides financial flexibility while helping reduce your interest over time. Some lenders charge a fee for each redraw (typically $20 to $50), while others offer unlimited free redraws.
Additional Repayments
Most variable rate loans allow you to make extra repayments without penalty. This feature can save you thousands in interest and help you own your home sooner. Setting up a realistic first home buyer budget that includes extra repayments can significantly reduce your loan term.
Other Costs First Home Buyers Should Consider
Settlement Costs
When your loan settles, you'll need to pay various government charges and legal fees. These can include:
- Stamp duty (though first home buyer stamp duty concessions may apply in Western Australia)
- Transfer fees
- Mortgage registration fees
- Conveyancing or solicitor fees
Discharge Fees
If you decide to switch lenders or pay off your loan early, you'll typically pay a discharge fee ranging from $150 to $400. This covers the administrative cost of closing your loan and removing the mortgage from the property title.
Break Costs
While variable rate loans don't typically have break costs, it's worth understanding this term. If you had a fixed interest rate and switched to a variable rate before the fixed term ended, you might face significant break costs.
Government Support and First Home Buyer Eligibility
Understanding your first home buyer eligibility for government schemes can significantly reduce your costs:
- First Home Owner Grants (FHOG): Available in Western Australia for eligible first home buyers purchasing or building a new home
- Regional First Home Buyer Guarantee: Helps eligible buyers in regional areas purchase with a smaller deposit
- First Home Super Saver Scheme: Allows you to save for your deposit through your superannuation
These schemes can help reduce upfront costs and make homeownership more achievable when combined with the right variable rate loan.
Creating Your First Home Buyer Checklist
When comparing variable rate loans, include these items in your first home buyer checklist:
- Compare interest rates from multiple lenders
- Calculate all upfront fees and charges
- Understand ongoing monthly costs
- Check what features are included (offset account, redraw)
- Confirm first home buyer eligibility for government schemes
- Get pre-approval before house hunting
- Factor in settlement costs and legal fees
- Consider whether you can use a gift deposit from family
Working with a Mortgage Broker in Byford
A mortgage broker can help you navigate the complexities of variable rate loans and find options that suit your circumstances. They have access to multiple lenders and can compare rates and fees across the market.
At Simple Lending, we specialise in helping first home buyers in Byford understand their home loan options and find solutions that fit their budget. We can assist with your first home loan application, explain different loan features, and help you access government schemes you may be eligible for.
Understanding variable interest rate fees and costs is essential for making informed decisions about buying your first home. While the initial costs might seem substantial, the flexibility and features of variable rate loans can provide long-term benefits that help you achieve your property goals sooner.
Call one of our team or book an appointment at a time that works for you. We'll help you understand your options and guide you through the home loan application process.
