Why Should First Home Buyers Consider 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 variable interest rate and a fixed interest rate for your home loan. A variable interest rate means your repayments can change over time as the interest rate moves up or down. Unlike a fixed interest rate that stays the same for a set period, variable rates respond to changes in the broader lending market.

For many first home buyers in Kings Park, variable rate loans offer features and flexibility that align well with their financial goals. Understanding how these loans work will help you make an informed decision when you apply for a home loan.

Key Features of Variable Rate Loans

Variable rate home loans typically come with several valuable features that can help you manage your mortgage more effectively:

• Offset account: A transaction account linked to your home loan that offsets the balance against your loan, reducing the interest you pay
• Redraw facility: Allows you to access any extra repayments you've made on your loan
• Flexible repayment options: Make additional repayments without penalty to pay off your loan faster
• No break costs: Unlike fixed rate loans, you won't face penalties if you pay out your loan early or refinance

These features make variable rate loans particularly attractive for first home buyers who want control over their mortgage and the ability to pay it off sooner.

How Variable Rates Can Work in Your Favour

When the Reserve Bank of Australia reduces interest rates, variable rate home loan customers typically benefit from lower repayments. This means more money stays in your pocket each month. For first home buyers working within a tight first home buyer budget, this flexibility can be valuable.

Variable rates also allow you to take advantage of interest rate discounts that lenders may offer. When you're completing your home loan application, ask your mortgage broker about any available discounts or special offers for first home buyers.

First Home Buyer Assistance and Variable Loans

When exploring home loan options as a first home buyer, you'll find that variable rate loans work well with various government assistance programs. The First Home Loan Deposit Scheme allows eligible first home buyers to purchase a property with a 5% deposit or 10% deposit without paying Lenders Mortgage Insurance (LMI). This scheme is available with both variable and fixed interest rate loans.

Other programs to consider include:

• First home owner grants (FHOG)
• First home buyer stamp duty concessions
• Regional first home buyer Guarantee
• First home super saver scheme

These initiatives can significantly reduce the upfront costs of buying your first home, making homeownership more achievable for residents in Kings Park.

Low Deposit Options with Variable Rates

Many first home buyers worry about saving a large deposit. The good news is that several low deposit options are available with variable rate loans. You may be able to secure a home loan with:

• A 5% deposit through the First Home Loan Deposit Scheme
• A 10% deposit with various lenders
• A gift deposit from family members to help reach the required amount

While a smaller deposit may mean paying Lenders Mortgage Insurance (LMI), getting into the property market sooner can be worthwhile. Some lenders also offer LMI waivers for certain professions, so discuss this with your broker when considering your first home loan application.

Managing Your Variable Rate Loan

Once you've secured pre-approval and settled on your first home, managing your variable rate loan effectively becomes important. Here's a first home buyer checklist for maximising your loan benefits:

1. Use your offset account: Keep your everyday banking in this account to reduce interest charges
2. Make extra repayments: Even small additional amounts can significantly reduce your loan term
3. Review your rate regularly: Check that you're still getting value and consider refinancing if needed
4. Build an emergency buffer: Use your redraw facility strategically to build savings within your loan
5. Monitor rate changes: Stay informed about interest rate movements and adjust your budget accordingly

First Home Buyer Eligibility and Variable Loans

Understanding first home buyer eligibility criteria is essential before starting your home loan application. Generally, to qualify as a first home buyer, you must:

• Be purchasing your first home (or not have owned property for a certain period)
• Be an Australian citizen or permanent resident
• Intend to live in the property as your primary residence
• Meet the lender's income and credit requirements

Variable rate loans don't have different eligibility requirements compared to fixed rate loans, so you can choose based on which product suits your circumstances rather than qualification concerns.

Making the Right Choice for Your Situation

There's no single right answer for whether a variable interest rate or fixed interest rate is better. The decision depends on your personal circumstances, risk tolerance, and financial goals. Variable rates suit people who:

• Want the flexibility to make extra repayments
• Value features like offset accounts and redraw facilities
• Are comfortable with potential rate increases
• Plan to refinance or sell within a few years
• Want to avoid break costs if circumstances change

Many first home buyers also choose a split loan, where part of the loan is on a variable interest rate and part on a fixed interest rate. This approach provides a balance of security and flexibility.

Getting Expert Guidance

Browsing through home loans for first home buyers can feel overwhelming, especially when comparing variable and fixed options. Working with an experienced mortgage broker can help you understand the differences and find a loan that matches your needs.

A broker can also assist with getting loan pre-approval, which strengthens your position when making an offer on a property. Pre-approval shows sellers you're a serious buyer with finance already arranged, giving you confidence during the purchasing process.

Taking the Next Step

Buying your first home in Kings Park is an exciting milestone. Whether you choose a variable rate loan for its flexibility or prefer the certainty of a fixed rate, the most important thing is finding a solution that works for your situation.

Simple Lending specialises in helping first home buyers understand their options and secure the right home loan for their circumstances. Our team can explain the features of different home loan options, help you understand your first home buyer budget, and guide you through the entire first home loan application process.

Call one of our team or book an appointment at a time that works for you to discuss your variable rate loan options and start your journey to homeownership today.