Proven Tips to Understand Variable Rate Loan Fees and Costs

Understanding Variable Rate Loans for First Home Buyers

When you're buying your first home in Victoria, understanding the fees and costs associated with variable interest rate loans is crucial for managing your first home buyer budget. Variable rate home loans offer flexibility that can work in your favour, but they come with specific costs that differ from fixed interest rate options.

A variable interest rate moves up or down in response to market conditions and lender decisions. While this means your repayments can change, it also provides access to features like offset accounts and redraw facilities that can help you build wealth over time.

Key Fees Associated with Variable Rate Home Loans

When preparing your first home buyer checklist, you'll need to account for several fees beyond the property purchase price:

Application and Setup Fees

• Home loan application fees typically range from $0 to $600
• Valuation fees for property assessment: $200 to $400
• Settlement fees: $300 to $800

Ongoing Costs

• Annual account keeping fees: $0 to $395 per year
• Monthly service fees: some lenders charge $10 to $15 per month

Understanding Lenders Mortgage Insurance (LMI)

If you're applying with a 5% deposit or 10% deposit, you'll likely need to pay Lenders Mortgage Insurance (LMI). This protects the lender if you default on your first home loan. LMI costs vary based on your deposit size and loan amount, potentially ranging from $2,000 to $20,000 or more.

However, the First Home Loan Deposit Scheme and Regional First Home Buyer Guarantee can help you avoid LMI even with low deposit options. These government initiatives are worth exploring when you apply for a home loan.

Variable Rate Features That Add Value

Variable interest rate loans typically offer features that can accelerate your wealth-building journey:

Offset Account Benefits

An offset account links to your home loan and reduces the interest charged. For example, if you have a $400,000 loan and $20,000 in your offset account, you only pay interest on $380,000. This feature is rarely available with fixed interest rate products.

Redraw Facility

A redraw facility allows you to access additional repayments you've made. This provides financial flexibility while still reducing your interest over time. Some lenders charge fees for redraw transactions, so check the terms during your first home loan application.

First Home Buyer Assistance in Victoria

Victorian first home buyers can access several concessions and grants:

1. First home buyer stamp duty concessions: Full or partial exemptions on properties up to certain values
2. First home owner grants (FHOG): Available for newly built homes or substantial renovations
3. First home super saver scheme: Allows you to save for your deposit using superannuation with tax benefits

These initiatives can significantly reduce your upfront costs when combined with suitable home loan options.

Comparing Variable Rate Loan Costs

When reviewing your home loan options, consider the comparison rate, which includes the interest rate and most fees. This gives you a more accurate picture of the true cost.

Some lenders offer interest rate discounts for:

• Professional package customers
• Borrowers with larger deposits
• Those who maintain certain account balances
• Clients who bundle products like home and contents insurance

Pre-Approval and the Application Process

Obtaining pre-approval before house hunting provides clarity on your borrowing capacity and demonstrates to vendors that you're a serious buyer. The pre-approval process involves:

1. Assessing your first home buyer eligibility
2. Reviewing your income, expenses, and credit history
3. Determining your maximum loan amount
4. Identifying suitable lenders and products

Pre-approval typically lasts 3 to 6 months, giving you time to find the right property. Understanding your borrowing capacity helps you search within your means.

Gift Deposits and Family Support

Many first home buyers receive a gift deposit from family members to boost their savings. Most lenders accept genuine gifts as part of your deposit, though they'll require a signed declaration confirming the funds don't need to be repaid.

Combining a gift deposit with low deposit options can help you enter the property market sooner while still accessing competitive variable interest rates.

Refinancing Considerations for the Future

While you're focused on your first home loan now, understanding refinancing options is valuable for long-term wealth building. Variable rate loans typically don't have the same exit fees as fixed rate products, making it more affordable to refinance if you find better terms or want to access equity for investment purposes.

As you build your property portfolio, the flexibility of variable rates becomes increasingly valuable for accessing funds and managing multiple properties.

Making Your Decision

Variable interest rate loans suit first home buyers who:

• Value flexibility and features like offset accounts
• Want to make additional repayments without restrictions
• Believe rates may decrease in the medium term
• Plan to pay off their loan faster than the standard term

When preparing to apply for a home loan, gather your financial documents, understand all associated fees, and consider how the loan features align with your wealth-building goals.

At ZARALEND, our experienced team specialises in helping Victorian first home buyers understand their options and find suitable variable rate loans that match their financial situation and goals. We can help you work through investment loan strategies for your future property portfolio.

Call one of our team or book an appointment at a time that works for you to discuss your first home buyer journey and explore the variable rate home loan options available to you.