Unlock the Power of Variable Rates & Extra Repayments

If you're a first home buyer, you've probably spent countless hours researching home loan options and wondering which type of loan will work for your situation. One question that comes up often is whether a variable interest rate loan is the right choice, and how making extra repayments can impact your journey to owning your home outright.

Let's have a chat about variable rate loans and why they might be worth considering, especially when you're buying your first home.

Understanding Variable Interest Rates

A variable interest rate moves up and down based on market conditions and your lender's decisions. Unlike a fixed interest rate that stays the same for a set period, your variable rate can change at any time. While this might sound uncertain, variable rate loans often come with features that can help you pay off your mortgage faster.

When you're going through your first home loan application, understanding the difference between variable and fixed rates is crucial. Many first home buyers opt for variable rates because of the flexibility they offer.

The Benefits of Variable Rate Loans for First Home Buyers

Variable rate loans come with several advantages that can work in your favour:

• Flexibility with extra repayments: You can typically make unlimited additional repayments without penalties
• Access to offset accounts: These accounts can reduce the interest you pay on your home loan
• Redraw facilities: If you've made extra repayments, you can often access these funds if needed
• Potential for rate decreases: When interest rates drop, so does your repayment amount

For first home buyers working with a tight first home buyer budget, these features can make a significant difference over the life of your loan.

How Extra Repayments Can Transform Your Mortgage

Making extra repayments is one of the most effective strategies for paying off your first home loan faster. Even small additional amounts can shave years off your mortgage and save you thousands in interest.

Here's an example: If you have a $500,000 home loan with a variable interest rate of 6% over 30 years, your monthly repayment would be approximately $2,997. By paying just an extra $500 per month, you could reduce your loan term by around 7 years and save over $120,000 in interest.

Making Extra Repayments Work for You

When you apply for a home loan with a variable rate, consider these strategies for making extra repayments:

1. Round up your repayments: If your monthly repayment is $2,997, round it up to $3,000 or $3,100
2. Use windfalls wisely: Put tax returns, bonuses, or gifts towards your mortgage
3. Set up an offset account: Keep your savings in an offset account linked to your home loan
4. Make fortnightly repayments: Instead of monthly payments, pay half the amount every fortnight

First Home Buyer Support Options

As a first home buyer, you might be eligible for various government schemes that can help you get into the property market sooner:

First Home Loan Deposit Scheme: This allows eligible first home buyers to purchase a home with 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 above scheme but specifically for properties in regional areas, offering low deposit options for those buying outside major cities.

First Home Owner Grants (FHOG): Depending on your state or territory, you may be eligible for first home owner grants to help with your purchase.

First Home Buyer Stamp Duty Concessions: Many states offer stamp duty concessions or exemptions for first home buyers, which can save you thousands.

First Home Super Saver Scheme: This scheme allows you to save money for your first home inside your super fund, potentially benefiting from tax advantages.

Getting Your First Home Buyer Checklist in Order

Before you start your home loan application, make sure you understand first home buyer eligibility requirements. Lenders will assess your:

• Income and employment history
• Savings and deposit amount (whether it's a 5% deposit, 10% deposit, or gift deposit)
• Credit history and existing debts
• Borrowing capacity

Getting pre-approval before you start house hunting can give you confidence about what you can afford and show sellers you're serious.

Offset Accounts vs Redraw Facilities

Both offset accounts and redraw facilities can help you save on interest, but they work differently:

Offset Account: A transaction account linked to your home loan. The balance in this account offsets the loan balance when calculating interest. For example, if you have a $400,000 loan and $20,000 in your offset account, you only pay interest on $380,000.

Redraw Facility: This allows you to access extra repayments you've made on your loan. While this provides flexibility, some lenders may charge fees or have minimum redraw amounts.

Variable rate loans typically offer both features, giving you more control over your finances.

Interest Rate Discounts and What to Look For

When comparing home loan options, don't just focus on the advertised interest rate. Look for:

• Available interest rate discounts for new customers
• Ongoing fees and charges
• Flexibility with repayments
• Features like offset accounts included at no extra cost
• The lender's history with rate changes

At Blank Financial, we work with multiple lenders to find options that suit your circumstances, whether you're in Mount Eliza or anywhere across Australia.

Is a Variable Rate Right for You?

Variable rate loans can be particularly suitable for first home buyers who:

• Want flexibility to make extra repayments
• Plan to pay off their loan faster
• Can handle some uncertainty with rate changes
• Want access to features like offset accounts
• Expect their income to increase over time

Of course, every situation is different. Some first home buyers prefer the certainty of a fixed interest rate, while others choose a split loan with both fixed and variable portions.

Taking the Next Step

Buying your first home is an exciting milestone, and choosing the right home loan structure is an important part of that journey. Understanding how variable interest rates work and the power of extra repayments can help you make informed decisions that benefit your financial future.

Whether you're just starting to explore your options or you're ready to apply for a home loan, professional guidance can make the process clearer and help you access opportunities you might not have known about.

Call one of our team or book an appointment at a time that works for you. We're here to help first home buyers across Australia find home loan solutions that align with their goals and circumstances.