Understanding Variable Rate Loan Fees and Costs

What Are Variable Interest Rate Home Loans?

When you're buying your first home, understanding the different home loan options available is crucial to making an informed decision. A variable interest rate loan is a type of home loan where the interest rate can move up or down throughout the life of your loan. Unlike a fixed interest rate that remains constant for a set period, variable rates fluctuate based on market conditions and lending policy changes.

For first home buyers in Doncaster, variable rate loans offer flexibility that can be beneficial depending on your financial circumstances and goals. These loans typically come with features such as an offset account and redraw facility, which can help you manage your mortgage more effectively.

Understanding the Fees and Costs

Before you apply for a home loan, it's important to understand all the fees and costs involved. Here are the main expenses you should consider:

Application Fee: Some lenders charge an upfront fee when you submit your first home loan application. This can range from $0 to $1,000 depending on the lender.

Valuation Fee: Lenders need to confirm the property's value before approving your loan. This typically costs between $200 and $400.

Settlement Fee: This covers the administrative costs of establishing your loan, usually ranging from $200 to $800.

Lenders Mortgage Insurance (LMI): If you're using low deposit options such as a 5% deposit or 10% deposit, you'll likely need to pay LMI. This insurance protects the lender if you default on your loan. The cost varies based on your deposit size and loan amount, potentially adding thousands to your upfront costs.

Ongoing Monthly Fees: Some variable rate loans include monthly account keeping fees, typically between $10 and $15 per month.

First Home Buyer Support Options

As a first home buyer, several government schemes can help reduce your costs:

First Home Loan Deposit Scheme: This programme allows eligible first home buyers to purchase a property with as little as a 5% deposit without paying LMI.

Regional First Home Buyer Guarantee: Specifically designed for those purchasing in regional areas, this scheme offers similar benefits to the standard deposit scheme.

First Home Owner Grants (FHOG): Depending on the property you're purchasing, you may be eligible for a grant to help with your purchase.

First Home Buyer Stamp Duty Concessions: Victorian first home buyers can receive significant concessions or exemptions on stamp duty, potentially saving tens of thousands of dollars.

First Home Super Saver Scheme: This allows you to save for your deposit using your superannuation, providing tax benefits along the way.

Understanding your first home buyer eligibility for these schemes is an important part of your first home buyer checklist.

Benefits of Variable Rate Loans

Variable interest rate loans offer several advantages that may suit your circumstances:

1. Flexibility: You can usually make extra repayments without penalty, helping you pay off your first home loan faster.

2. Offset Account: Many variable loans include an offset account, where your savings can reduce the interest charged on your loan.

3. Redraw Facility: Access to extra repayments you've made can provide a financial buffer for unexpected expenses.

4. Interest Rate Discounts: When the official cash rate drops, your interest rate may decrease, reducing your monthly repayments.

5. No Break Costs: Unlike fixed interest rate loans, you won't face penalties if you pay out your loan early or refinance.

Creating Your First Home Buyer Budget

Developing a comprehensive first home buyer budget is essential. Consider these ongoing costs:

• Monthly loan repayments
• Council rates
• Water rates
• Building and contents insurance
• Maintenance and repairs
• Strata fees (if applicable)

Your borrowing capacity will be assessed based on your income, expenses, and existing debts. Understanding this helps you determine what you can realistically afford.

The Home Loan Application Process

The journey to securing your first home loan involves several steps:

1. Get Pre-Approval: Before you start house hunting, obtaining pre-approval shows sellers you're a serious buyer. Pre-approval also gives you clarity on your budget.

2. Choose Your Loan: Research different home loan options and decide whether a variable interest rate suits your needs.

3. Submit Your Application: Once you've found a property, you'll need to formally apply for a home loan with supporting documentation.

4. Loan Assessment: The lender reviews your application, verifies your information, and conducts a property valuation.

5. Approval and Settlement: After approval, you'll proceed to settlement where ownership is transferred to you.

Gift Deposits and Genuine Savings

Many first home buyers receive help from family through a gift deposit. Lenders generally accept genuine gifts as part of your deposit, though they'll require documentation proving the funds don't need to be repaid. Some lenders require a portion of your deposit to come from genuine savings, typically accumulated over three to six months.

Comparing Variable Rate Features

When evaluating variable rate loans, consider:

• The interest rate and how it compares across lenders
• Whether an offset account is included
• Redraw facility availability and any associated fees
• Limits on extra repayments
• Account keeping fees
• Package discounts if bundling with other products

Our team at OVM Finance Group can help you compare these features across multiple lenders to find a loan that matches your requirements.

Working with a Mortgage Broker in Doncaster

Partnering with experienced mortgage brokers provides several advantages for first home buyers. We have access to numerous lenders and can help you:

• Navigate first home buyer schemes and grants
• Prepare your documentation for your home loan application
• Compare interest rates and loan features
• Understand your first home buyer eligibility
• Structure your loan appropriately

Our local knowledge of the Doncaster market means we understand the specific challenges and opportunities for buyers in the area.

Taking the Next Step

Buying your first home is a significant milestone, and understanding variable rate loan fees and costs is an important part of the process. Whether you're exploring a 5% deposit option, seeking pre-approval, or comparing different home loan options, having professional guidance can make a substantial difference.

At OVM Finance Group, we specialise in helping first home buyers throughout Doncaster and surrounding areas. We'll work with you to understand your financial situation, explore available grants and concessions, and find a loan structure that supports your goals.

Call one of our team or book an appointment at a time that works for you to discuss your first home loan application and how we can assist you in achieving homeownership.