Everything You Need to Know About Variable Rate Loans

Understanding Variable Rate Loans for First Home Buyers

When buying your first home, choosing the right home loan structure is one of the most important decisions you'll make. For many first home buyers in Essendon North, a variable interest rate loan offers flexibility and features that can help manage your finances effectively over the life of your loan.

A variable interest rate means your loan's interest rate can move up or down based on market conditions and lender decisions. Unlike a fixed interest rate that stays the same for a set period, variable rates adjust regularly, which means your repayments can change over time.

Key Features of Variable Rate Home Loans

Variable rate loans typically come with several features that make them attractive to first home buyers:

• Offset account: Link a transaction account to your home loan, and the balance in that account offsets your loan balance, reducing the interest you pay
• Redraw facility: Access extra repayments you've made on your loan when you need them
• Flexible repayments: Make additional repayments without penalties, helping you pay off your loan faster
• Interest rate discounts: Many lenders offer rate discounts for various reasons, including profession-based discounts or package deals

These features provide more control over your first home loan compared to fixed rate alternatives, which often have restrictions on extra repayments and limited access to offset accounts.

First Home Buyer Eligibility and Government Support

Before you apply for a home loan, it's important to understand your first home buyer eligibility and the support available. Several government initiatives can help reduce the upfront costs of buying your first home:

First Home Loan Deposit Scheme: This scheme allows eligible first home buyers to purchase a property with as little as a 5% deposit without paying Lenders Mortgage Insurance (LMI). The government guarantees up to 15% of the property value.

Regional First Home Buyer Guarantee: Similar to the scheme above but specifically for properties in regional areas, offering the same low deposit options.

First home owner grants (FHOG): Victorian first home buyers may be eligible for grants when purchasing or building a new home, subject to property value caps and eligibility criteria.

First home buyer stamp duty concessions: Significant savings are available on stamp duty for eligible first home buyers, potentially saving thousands of dollars on your purchase.

Our team at Margin Finance can help you understand which schemes you qualify for and incorporate them into your first home buyer budget.

Low Deposit Options for First Home Buyers

Saving a deposit is often the biggest hurdle for first home buyers. Understanding your home loan options regarding deposit requirements is crucial:

5% deposit: Through government schemes or by paying LMI, you may be able to purchase with just 5% saved. This option gets you into the market sooner but typically involves higher costs.

10% deposit: A more common entry point for first home buyers. You'll still need to pay LMI, but the insurance premium will be lower than with a 5% deposit.

Gift deposit: Many lenders accept genuine gifts from family members as part of your deposit. This can help you reach the required deposit amount faster.

When considering low deposit options, remember that LMI protects the lender if you default on your loan. The premium is added to your loan amount or paid upfront, and the cost varies based on your deposit size and loan amount.

Preparing Your First Home Loan Application

A well-prepared first home loan application increases your chances of approval and may help you secure better interest rate terms. Here's your first home buyer checklist:

1. Check your credit score: Ensure your credit history is accurate and address any issues before applying
2. Gather documentation: Recent payslips, tax returns, bank statements, and identification
3. Review your expenses: Lenders assess your spending habits, so review your bank statements for unnecessary expenses
4. Calculate genuine savings: Most lenders want to see you've saved at least 5% through regular savings over three to six months
5. Consider pre-approval: Getting pre-approval before house hunting shows sellers you're a serious buyer and helps you understand your borrowing capacity

The First Home Super Saver Scheme

The first home super saver scheme allows you to save money for your deposit inside your superannuation fund. You can make voluntary contributions (up to certain limits) and then withdraw them, plus earnings, to put towards your first home purchase. This scheme offers tax advantages that can help you save faster for your deposit.

Variable vs Fixed: Making the Right Choice

While this article focuses on variable interest rate loans, it's worth understanding the distinction. A fixed interest rate locks in your rate for one to five years, providing certainty around repayments. However, you sacrifice flexibility and typically pay more for that certainty.

Variable rates can:

• Decrease when the Reserve Bank lowers rates, reducing your repayments
• Increase when rates rise, which means higher repayments
• Provide access to features like offset accounts and redraw facilities
• Allow unlimited extra repayments without penalties

Many first home buyers choose variable rates for the flexibility, especially when they expect their income to increase or want to pay off their loan faster.

Working with a Mortgage Broker in Essendon North

Understanding all your home loan options can be overwhelming. A mortgage broker has access to multiple lenders and can compare rates, features, and eligibility requirements on your behalf. At Margin Finance, we specialise in helping first home buyers find the right loan structure for their circumstances.

Our knowledge of government loan programs and assistance ensures you don't miss out on any concessions or schemes that could save you money. We'll also help you understand your borrowing capacity and structure your application for the optimal outcome.

Taking the Next Step

Buying your first home is an exciting milestone. With the right information and support, variable rate loans offer flexibility and features that can work well for your financial situation. Understanding first home buyer eligibility, available grants, and stamp duty concessions will help you make informed decisions about your purchase.

Whether you're just starting to save or you're ready to apply for a home loan, having professional guidance through the process makes a significant difference. Our experienced team understands the local Essendon North property market and can tailor advice to your specific circumstances.

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