Understanding Variable Interest Rate Loans
When you're buying your first home in Golden Grove, choosing between a fixed interest rate and variable interest rate loan is one of the most important decisions you'll make during your first home loan application. Variable rate loans offer flexibility that many first home buyers find appealing, but understanding all the associated fees and costs is essential for managing your first home buyer budget.
A variable interest rate means your repayments can change as the lender adjusts rates in response to market conditions. While this might sound uncertain, variable rate loans typically come with features that can help you pay off your mortgage faster and save money in the long run.
Key Features of Variable Rate Loans
Variable rate home loans often include valuable features that aren't available with fixed interest rate products:
- Offset account: This transaction account is linked to your home loan and can reduce the interest you pay
- Redraw facility: Access to extra repayments you've made above the minimum required amount
- Unlimited additional repayments: Pay off your loan faster without penalty
- Rate discounts: Many lenders offer interest rate discounts for new borrowers or those with larger deposits
These features provide flexibility that suits many first home buyers, particularly those who expect their income to increase or who want the option to pay off their loan ahead of schedule.
Upfront Costs When Applying for a Home Loan
Before you receive approval on your first home loan, you'll need to budget for several upfront expenses. Understanding these costs helps you prepare financially and avoid surprises during your home loan application process.
Application fees range from $0 to $600 depending on the lender. Some lenders waive this fee, particularly for first home buyers or during promotional periods. This fee covers the lender's administrative costs when processing your application.
Valuation fees typically cost between $200 and $400. Lenders require a professional property valuation to confirm the property's worth matches the purchase price. This protects both you and the lender.
Lenders Mortgage Insurance (LMI) represents one of the largest upfront costs for first home buyers. If you're borrowing more than 80% of the property's value - for example, with a 5% deposit or 10% deposit - you'll likely need to pay LMI. This insurance protects the lender if you default on your loan, and costs can range from a few thousand dollars to over $20,000 depending on your loan amount and deposit size.
However, the First Home Loan Deposit Scheme and Regional First Home Buyer Guarantee can help eligible first home buyers avoid LMI even with low deposit options like a 5% deposit.
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Ongoing Fees and Charges
Once your loan is active, you'll encounter various ongoing fees. While not all lenders charge every fee, it's important to understand what you might pay:
Monthly account keeping fees range from $0 to $15 per month. Many lenders have removed this fee in recent years, but it's worth checking.
Annual package fees apply if you choose a packaged home loan product, typically costing $300 to $400 per year. These packages often bundle multiple features together and may offer interest rate discounts that offset the annual fee.
Offset account fees vary by lender. Some include offset accounts at no extra cost, while others charge monthly fees of $10 to $20.
Understanding First Home Buyer Stamp Duty Concessions
While not a loan fee, first home buyer stamp duty concessions significantly impact your overall costs when buying your first home. South Australia offers generous concessions for first home buyers, which can save you thousands of dollars. Your mortgage broker can help you understand your first home buyer eligibility for these benefits.
Potential Exit and Variation Fees
Variable rate loans typically offer more flexibility than fixed loans, but some fees may still apply:
Discharge fees ($150 to $400) cover the administrative costs when you pay off your loan completely or switch to another lender.
Settlement fees ($200 to $300) apply when your loan is first established.
Additional repayment fees are uncommon with variable rate loans, which is one of their main advantages. Unlike fixed interest rate loans, you can usually make unlimited extra repayments without penalty.
Comparing Home Loan Options
When you apply for a home loan, comparing the total cost over the life of the loan matters more than focusing solely on the interest rate. A loan with a slightly higher interest rate but lower fees might cost less overall than one with a lower rate but higher ongoing charges.
Consider these factors when evaluating your home loan options:
- The comparison rate (which includes most fees and the interest rate)
- Whether you'll use features like offset accounts and redraw facilities
- Your plans for making additional repayments
- How long you intend to keep the loan
- Your eligibility for first home owner grants (FHOG) and other assistance
Creating Your First Home Buyer Checklist
A comprehensive first home buyer checklist should include:
- Research into first home buyer grants available in South Australia
- Understanding your borrowing capacity
- Saving for your deposit (remember that gift deposit funds are often acceptable)
- Gathering documents for your first home loan application
- Obtaining pre-approval before house hunting
- Comparing interest rates and fees from multiple lenders
- Understanding all costs associated with your chosen loan product
- Checking eligibility for the first home super saver scheme
Getting Professional Guidance
The range of fees, government schemes, and loan features can feel overwhelming when you're buying your first home. Working with an experienced mortgage broker helps you understand which costs are negotiable, which loans offer genuine value, and how to structure your finances to minimise unnecessary expenses.
A broker can access multiple lenders and compare their fee structures, often securing better interest rate discounts than you could obtain directly. They understand how to position your application to maximise your chances of approval while minimising costs like LMI where possible.
Ready to explore your variable rate loan options and understand exactly what fees you'll pay? Call one of our team or book an appointment at a time that works for you. Our Golden Grove mortgage brokers specialise in helping first home buyers understand their options and find home loans that match their financial situation and goals.
