Understanding Variable Rate Home Loans for First Home Buyers
When buying your first home in Ashburton, choosing between a fixed interest rate and a variable interest rate can feel overwhelming. While both options have their place, variable rate loans offer distinct features that many first home buyers find valuable. Understanding these features can help you make an informed decision when you apply for a home loan.
A variable interest rate moves up or down based on market conditions and lender decisions. Unlike fixed interest rates that remain locked for a set period, variable rates provide flexibility that could work in your favour depending on your financial situation and goals.
Key Features of Variable Rate Loans
Variable rate home loans come with several features that can make managing your first home loan more flexible:
Offset Account Functionality
An offset account is a transaction account linked to your home loan. The balance in this account offsets the amount you owe on your mortgage, reducing the interest you pay. For example, if you have a $400,000 home loan and $20,000 in your offset account, you only pay interest on $380,000. This feature can save you thousands in interest over the life of your loan while keeping your savings accessible for emergencies.
Redraw Facilities
Most variable rate loans include a redraw facility, allowing you to access any extra repayments you've made above the minimum required amount. This provides financial flexibility if unexpected expenses arise, making it particularly useful for first home buyers who may need access to funds for home improvements or other costs after settlement.
Additional Repayment Options
Variable rate loans typically allow unlimited additional repayments without penalty. Making extra repayments when you can afford to do so helps reduce your loan principal faster, saving on interest and potentially shortening your loan term.
Variable Rates and Your First Home Buyer Budget
When planning your first home buyer budget, variable rates offer both opportunities and considerations. While the interest rate can decrease, providing potential savings, it can also increase, which means your repayments could rise. This uncertainty requires careful budgeting and maintaining a financial buffer.
For Ashburton residents using government assistance like the First Home Loan Deposit Scheme or Regional First Home Buyer Guarantee, variable rates can complement these programs effectively. These schemes help you purchase with a 5% deposit or 10% deposit, avoiding Lenders Mortgage Insurance (LMI) in some cases.
Combining Variable Rates with First Home Buyer Concessions
Ashburton first home buyers may be eligible for various state and federal concessions:
- First home owner grants (FHOG) - Financial assistance for purchasing or building your first home
- First home buyer stamp duty concessions - Reduced or waived stamp duty depending on property value
- First Home Super Saver Scheme - Allows you to save for a deposit using your superannuation
These concessions work alongside your chosen loan type, whether variable or fixed. When combined with features like offset accounts, you can maximise your financial position from day one.
Interest Rate Discounts and Package Benefits
Many lenders offer interest rate discounts on variable rate loans when you meet certain criteria, such as:
- Maintaining a specific loan balance
- Having your salary deposited into the lender's transaction account
- Holding multiple products with the same lender
- Having a lower loan-to-value ratio (LVR)
These discounts can make variable rates more attractive and should be considered when comparing home loan options during your first home loan application.
Gift Deposits and Low Deposit Options
If you're purchasing with a gift deposit from family members or exploring low deposit options, variable rate loans accommodate these arrangements. Many lenders accept genuine savings combined with gifted funds, making homeownership more attainable for first home buyers in Ashburton.
The flexibility of variable loans also suits buyers using the First Home Loan Deposit Scheme, which allows purchases with smaller deposits while the government guarantees a portion of the loan.
The Pre-Approval Advantage
Obtaining pre-approval before house hunting gives you clarity on your borrowing capacity and strengthens your position when making offers. With a variable rate loan, pre-approval helps you understand:
- Your maximum borrowing amount
- Estimated repayments at current rates
- Which loan features you qualify for
- Your first home buyer eligibility for various schemes
Pre-approval typically lasts 90 days, giving you time to find the right property with confidence.
Your First Home Buyer Checklist
Before submitting your home loan application, ensure you have:
- Reviewed your credit history and addressed any issues
- Saved your deposit and documented its source
- Gathered payslips, tax returns, and bank statements
- Researched first home buyer grants available in your area
- Compared home loan options from multiple lenders
- Considered both fixed and variable interest rate products
- Determined which loan features matter most to you
- Calculated your comfortable repayment level with rate buffers
Making Your Decision
Choosing a variable interest rate for your first home loan provides ongoing flexibility that suits many buyers in Ashburton. The ability to make extra repayments, access offset accounts, and potentially benefit from rate decreases makes variable loans worth serious consideration.
However, the right choice depends on your personal circumstances, risk tolerance, and financial goals. Some first home buyers prefer the certainty of fixed interest rates, while others value the flexibility of variable options. You might even consider splitting your loan between both.
At Law Home Loans, we specialise in helping first home buyers understand their options and find suitable solutions. Our team can guide you through the home loan application process, explain your first home buyer eligibility for various schemes, and help you access any concessions or grants you qualify for.
Whether you're exploring low deposit loans, need assistance with your first home buyer application, or want to understand your borrowing capacity, we're here to help Ashburton residents achieve their homeownership goals.
Call one of our team or book an appointment at a time that works for you to discuss your variable rate home loan options and take the next step towards buying your first home.