Understanding Variable Interest Rates
When you're buying your first home in Blakeview, SA, one of the most important decisions you'll make is choosing between a variable interest rate and a fixed interest rate. Variable rates fluctuate based on market conditions and lender decisions, which means your repayments can change over the life of your loan.
Unlike a fixed interest rate that remains the same for a set period, a variable interest rate offers flexibility and access to features that can help you pay off your mortgage sooner. For first home buyers in Blakeview, understanding these features is essential when preparing your first home buyer checklist and planning your first home buyer budget.
Key Features of Variable Rate Loans
Offset Account
An offset account is one of the most valuable features available with many variable rate loans. This is a transaction account linked to your home loan where the balance is offset against 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.
This feature can significantly reduce the amount of interest you pay over the life of your loan. As a first home buyer, using an offset account strategically can help you save thousands of dollars while maintaining access to your savings for emergencies.
Redraw Facility
A redraw facility allows you to access any extra repayments you've made on your home loan. If you've been making additional payments during periods when you have spare cash, you can withdraw these funds if needed. This provides flexibility for unexpected expenses or opportunities that arise.
While redraw facilities offer convenience, it's important to check with your lender about any conditions or fees that may apply when accessing these funds.
Extra Repayments Without Penalty
Most variable rate loans allow you to make additional repayments without incurring penalties. This is particularly beneficial for first home buyers who receive bonuses, tax returns, or other lump sums throughout the year. Making extra repayments can reduce your loan term and save you substantial amounts in interest.
If you're using a 5% deposit or 10% deposit through schemes like the First Home Loan Deposit Scheme or Regional first home buyer Guarantee, the ability to make extra repayments becomes even more valuable as you work to reduce your Lenders Mortgage Insurance (LMI) and build equity faster.
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Comparing Variable Rate Loan Options
When you apply for a home loan as a first home buyer, you'll encounter various interest rate discounts and special offers. Some lenders provide rate discounts based on your loan-to-value ratio (LVR), while others offer reductions if you have an offset account or meet certain criteria.
Your first home loan application should include research into different Home Loan options from various lenders. Each lender structures their variable rates differently, and understanding these differences can save you money over the life of your loan.
Benefits of Variable Rates for First Home Buyers
- Flexibility to make changes: Variable rate loans typically allow you to switch loan products or refinance without significant break costs
- Access to modern features: Most variable loans come with offset accounts, redraw facilities, and mobile banking
- Potential for rate decreases: When the Reserve Bank reduces rates, your repayments may decrease
- Faster loan repayment: The ability to make unlimited extra repayments helps you own your home sooner
Government Schemes and Variable Rates
Many first home buyers in Blakeview access government assistance through programs like first home owner grants (FHOG), first home buyer stamp duty concessions, and the First Home Loan Deposit Scheme. These programs can be combined with variable rate loans to maximise your benefits.
The first home super saver scheme allows you to save money in your superannuation fund to use as a deposit, which can then be paired with low deposit options. Understanding your first home buyer eligibility for these schemes is crucial when preparing your Home Loan application.
Considerations Before Choosing a Variable Rate
While variable rates offer numerous advantages, they also come with considerations. Your repayments can increase if interest rates rise, which means your first home buyer budget needs to account for potential rate movements. Most lenders will assess your home loan application using a higher interest rate buffer to ensure you can afford repayments if rates increase.
When you receive pre-approval for your first home loan, discuss with your broker how much your repayments would increase with various interest rate scenarios. This helps you understand your true borrowing capacity and prevents financial strain.
Making the Most of Variable Rate Features
To maximise the benefits of a variable rate loan:
- Direct your salary into an offset account to reduce interest charges
- Make regular extra repayments when your budget allows
- Review your loan annually to ensure you're still getting competitive rates
- Consider using gift deposits from family members to boost your offset account balance
- Understand the terms of your redraw facility before relying on accessing those funds
Getting Started with Your Application
The process to apply for a home loan with a variable rate involves gathering documentation about your income, expenses, assets, and liabilities. Your first home loan application will be assessed based on your ability to service the loan at higher interest rates than the actual rate you'll pay.
Working with a mortgage broker can help you compare Home Loan options across multiple lenders, find interest rate discounts, and identify products that offer the features most valuable to your situation. At Simple Lending, we specialise in helping first home buyers in South Australia understand their options and secure suitable finance.
Variable rate loans provide flexibility and features that can help you pay off your mortgage faster while maintaining access to your funds. For first home buyers in Blakeview, these features combined with government assistance programs can make buying your first home more achievable than you might think.
Call one of our team or book an appointment at a time that works for you to discuss your variable rate home loan options and start your journey towards homeownership.
