Understanding Variable Rate Loan Features for First Home Buyers

Buying your first home is an exciting milestone, and understanding the features available with variable rate loans can make a significant difference to your financial position. For first home buyers in Merrylands, knowing what features to look for when you apply for a home loan can help you make informed decisions about your first home loan application.

What is a Variable Interest Rate?

A variable interest rate is a home loan rate that can change over time based on market conditions and lender decisions. Unlike a fixed interest rate that remains the same for a set period, your variable interest rate may increase or decrease throughout the life of your loan. This means your repayments can fluctuate, which is an important consideration when planning your first home buyer budget.

While rate movements might seem unpredictable, variable rate loans typically offer more flexibility and features than their fixed-rate counterparts. Understanding these features is crucial when comparing home loan options during your first home loan application process.

Key Features of Variable Rate Loans

Offset Account

An offset account is one of the most valuable features available with variable rate loans. This is a transaction account linked to your home loan where the balance offsets the amount you owe, reducing the interest you pay.

For example, if you have a home loan of $500,000 and $20,000 in your offset account, you'll only pay interest on $480,000. The money in your offset account remains accessible, allowing you to:

• Save on interest without making extra repayments
• Keep your savings liquid for emergencies
• Build your first home buyer budget more effectively
• Reduce your loan term by maintaining a healthy balance

Redraw Facility

A redraw facility allows you to access any additional repayments you've made on your home loan. If you've paid more than the minimum required amount, you can withdraw these extra funds if needed.

This feature provides flexibility for first home buyers who might:

• Need funds for unexpected expenses
• Want to renovate their property
• Face temporary income changes
• Prefer to maintain a financial buffer

Keep in mind that some lenders may charge fees for redraw transactions or set minimum withdrawal amounts, so it's worth reviewing these conditions during your home loan application.

Additional Repayment Options

Variable rate loans typically allow you to make unlimited additional repayments without penalty. This flexibility helps you:

1. Pay off your loan faster
2. Save thousands in interest over the loan term
3. Build equity in your property more quickly
4. Adjust repayments based on your financial situation

For first home buyers who receive bonuses, tax returns, or irregular income, this feature can be particularly beneficial. Even small additional amounts can make a substantial difference over time.

Interest Rate Discounts and Packages

Many lenders offer interest rate discounts on variable rate loans, especially for first home buyers. These discounts might be available when you:

• Maintain a home loan above a certain amount
• Hold other products with the lender
• Have a loan-to-value ratio below a specific threshold
• Choose to make principal and interest repayments rather than interest-only

Some lenders also bundle variable rate loans with package deals that may include reduced fees on other banking products or waived annual loan fees.

Managing Lenders Mortgage Insurance (LMI)

When considering low deposit options like a 5% deposit or 10% deposit, you'll likely need to pay Lenders Mortgage Insurance (LMI). Variable rate loans offer several ways to manage this cost:

• Capitalise the LMI into your loan amount
• Pay it upfront from your savings
• Access schemes like the First Home Loan Deposit Scheme that may waive LMI requirements

Understanding first home buyer eligibility for government schemes can significantly reduce your upfront costs and make homeownership more accessible.

Portability Features

Variable rate loans often include portability, meaning you can transfer your existing loan to a new property without refinancing. This feature is valuable for first home buyers who might:

• Upgrade to a larger home in the future
• Relocate for work opportunities
• Want to keep their current interest rate
• Prefer to avoid discharge and application fees

Split Loan Options

Many lenders allow you to split your home loan between variable and fixed interest rates. This strategy lets you:

• Enjoy the flexibility of variable rate features on one portion
• Secure repayment certainty with a fixed rate on another portion
• Balance risk and opportunity
• Customise your loan structure to suit your circumstances

First Home Buyer Considerations in Merrylands

When applying for your first home loan in Merrylands, consider how variable rate loan features align with your goals. Create a first home buyer checklist that includes:

• Your preferred loan features (offset account, redraw, etc.)
• Whether you need a 5% deposit or can provide 10% deposit
• If you're eligible for first home owner grants (FHOG)
• Whether you qualify for first home buyer stamp duty concessions
• If a gift deposit will form part of your savings
• Your plans for the Regional first home buyer Guarantee if applicable

Getting Pre-Approval

Obtaining pre-approval before house hunting gives you confidence about your borrowing capacity and shows sellers you're a serious buyer. During the pre-approval process, you can discuss which variable rate loan features would work within your first home buyer budget.

Understanding the First Home Super Saver Scheme

The first home super saver scheme allows you to save money for your deposit through your superannuation fund, potentially reducing your tax burden. These savings can then be used as part of your deposit when you apply for a home loan, complementing the flexible features of a variable rate loan.

Making Your Decision

Choosing the right home loan options involves considering both current needs and future flexibility. Variable rate loans offer features that can adapt as your circumstances change, making them popular among first home buyers.

When reviewing your first home loan application, ask lenders about:

• What offset account conditions apply
• Whether redraw fees exist and how much they cost
• The specific interest rate and any available discounts
• Package deals that might benefit your situation
• How additional repayments work
• Whether the loan is portable

At Simple Lending, we specialise in helping first home buyers in Merrylands understand their options and find home loan solutions that suit their individual circumstances. Our team can guide you through the application process, explain how different features work, and help you access first home buyer grants and concessions you may be eligible for.

Call one of our team or book an appointment at a time that works for you. We'll work with you to explore home loan options that include the variable rate features that matter most for your situation.