Everything You Need to Know About Variable Rate Loans

Understanding Variable Rate Home Loans

When you're buying your first home, one of the most important decisions you'll make is choosing between a fixed interest rate and a variable interest rate. For first home buyers in Epping, understanding variable rate loan features can help you make an informed choice that suits your financial circumstances and goals.

A variable interest rate means your home loan's interest rate can move up or down based on market conditions and lender decisions. While this might sound uncertain, variable rate loans often come with features and flexibility that can work in your favour throughout your homeownership journey.

Key Features of Variable Rate Loans

Variable rate home loans typically offer several features that can help you manage and potentially reduce your mortgage more effectively:

Offset Account

An offset account is a transaction account linked to your home loan. The balance in this account is offset against your loan balance, reducing the amount of interest you pay. 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.

Redraw Facility

A redraw facility allows you to access any additional repayments you've made above the minimum required amount. This provides financial flexibility if you need funds for unexpected expenses while still reducing your interest over time when you make extra payments.

Additional Repayments

Most variable rate loans allow you to make extra repayments without penalty, helping you pay off your mortgage faster and save on interest charges over the life of your loan.

Interest Rate Discounts

Many lenders offer interest rate discounts on variable rate loans based on factors such as your loan amount, deposit size, or if you're a first home buyer. These discounts can make a significant difference to your repayments over time.

Benefits for First Home Buyers

Variable rate loans can be particularly advantageous for first home buyers in Epping for several reasons:

1. Flexibility to make additional repayments when you have surplus income
2. Access to offset accounts to reduce interest charges
3. Ability to refinance without significant break costs
4. Potential to benefit when interest rates decrease
5. Multiple loan features that can adapt to your changing circumstances

Low Deposit Options and Variable Rates

As a first home buyer, you might be exploring low deposit options such as a 5% deposit or 10% deposit home loan. Variable rate loans are available across various deposit levels, including:

• The First Home Loan Deposit Scheme which allows eligible buyers to purchase with a 5% deposit
• Standard 10% deposit options with Lenders Mortgage Insurance (LMI)
• Gift deposit arrangements where family members contribute to your deposit

Variable rates work with all these deposit scenarios, giving you flexibility regardless of your savings position.

Combining Variable Rates with Government Support

First home buyers in Epping may be eligible for various government initiatives that work well with variable rate loans:

• First home buyer grants (first home owner grants or FHOG)
• First home buyer stamp duty concessions to reduce upfront costs
• Regional first home buyer Guarantee for properties in eligible areas
• First home super saver scheme to help build your deposit

These programs can be accessed regardless of whether you choose a variable or fixed interest rate, but the flexibility of variable rate features may complement your first home buyer budget more effectively.

Understanding Your First Home Loan Application

When you apply for a home loan with a variable rate, the process involves several important steps:

Pre-approval

Getting pre-approval gives you confidence when house hunting. It shows sellers you're a serious buyer and helps you understand your borrowing capacity before you start searching for property.

First Home Buyer Eligibility

Your eligibility will depend on factors including your income, employment history, existing debts, credit score, and whether you meet first home buyer criteria for government assistance programs.

First Home Buyer Checklist

Before your first home loan application, gather:

• Proof of income (payslips, tax returns)
• Bank statements
• Identification documents
• Details of assets and liabilities
• Employment verification
• Deposit confirmation (including any gift deposit documentation)

Comparing Variable and Fixed Rates

While variable rates offer flexibility, it's worth understanding how they differ from fixed interest rates:

Variable Rate Advantages:

• Extra repayment options
• Offset account availability
• Redraw facilities
• No break costs if you refinance
• Potential interest savings when rates fall

Variable Rate Considerations:

• Interest rates can increase
• Repayments may change over time
• Requires budgeting flexibility

Many first home buyers choose variable rates specifically for the loan features and flexibility they provide during the early years of homeownership.

Making the Most of Variable Rate Features

To maximise the benefits of your variable rate home loan:

1. Use your offset account actively by depositing your salary and savings
2. Make regular additional repayments when your budget allows
3. Review your interest rate annually to ensure you're getting a competitive rate
4. Monitor your redraw balance to understand how much you've paid ahead
5. Consider refinancing if better home loan options become available

Working with Simple Lending in Epping

At Simple Lending, we understand that first home buyers need clear information about their home loan options. Our team can help you:

• Compare variable interest rate products from multiple lenders
• Understand which loan features suit your circumstances
• Navigate first home buyer eligibility requirements
• Access low deposit options including 5% deposit schemes
• Structure your loan to take advantage of offset accounts and redraw facilities
• Complete your first home loan application efficiently

Variable rate loans offer first home buyers in Epping the flexibility to adapt their mortgage as their financial situation evolves. With features like offset accounts, redraw facilities, and the ability to make additional repayments, you can take control of your home loan and potentially save thousands in interest over time.

Whether you're just starting to explore your first home loan options or you're ready to apply for a home loan, understanding variable rate features is an important part of your first home buyer journey.

Call one of our team or book an appointment at a time that works for you to discuss how variable rate loan features can support your home buying goals in Epping.