What First Home Buyers Need to Know About Variable Rate Fees

Variable interest rate home loans remain a popular choice among first home buyers in Belmont and the greater Geelong region. While these loans offer flexibility and the potential to benefit from rate cuts, it's crucial to understand all the associated fees and costs before making your first home loan application.

Understanding Variable Interest Rates

A variable interest rate can fluctuate up or down during the life of your loan, typically in response to changes in the Reserve Bank of Australia's cash rate. Unlike a fixed interest rate that remains constant for a set period, variable rates mean your repayments can change throughout your loan term.

Variable rate loans often come with features such as:

• Offset account capabilities to reduce interest charges
• Redraw facilities for accessing extra repayments
• The ability to make additional repayments without penalty
• Potential access to interest rate discounts

Common Fees Associated with Variable Rate Loans

When exploring home loan options, first home buyers should be aware of several types of fees that may apply:

Application and Establishment Fees
Most lenders charge an application fee to process your first home loan application. This typically ranges from $200 to $600, though some lenders may waive this fee as part of promotional offers.

Valuation Fees
Lenders require a professional valuation of the property you're purchasing. These fees usually range from $300 to $800, depending on the property's location and complexity.

Legal and Settlement Fees
Your lender may charge legal fees for preparing loan documents and settlement costs, which can range from $150 to $500.

Lenders Mortgage Insurance (LMI)
If you're applying with a low deposit option such as a 5% deposit or 10% deposit, you'll likely need to pay LMI. This protects the lender if you default on your loan. LMI costs vary significantly based on your deposit size and loan amount but can range from $1,500 to $15,000 or more.

Ongoing Costs and Charges

Beyond the upfront fees, variable rate loans may include ongoing costs:

Monthly or Annual Fees
Some loans charge monthly account-keeping fees ranging from $10 to $30 per month, while others may charge annual fees of $200 to $400.

Offset Account and Redraw Fees
While many lenders offer complimentary offset accounts and redraw facilities, some may charge fees for these features. Always confirm whether these services are included at no extra cost.

Break Fees
While less common with variable rate loans, some lenders may charge fees if you switch to a different loan product or lender within a certain timeframe.

Government Support for First Home Buyers

First home buyers in Victoria and throughout Australia have access to various support schemes that can help reduce costs:

First Home Owner Grants (FHOG)
Eligible first home buyers may receive government grants to help with purchasing their first property.

First Home Buyer Stamp Duty Concessions
Victoria offers stamp duty concessions for eligible first home buyers, which can save thousands of dollars.

Regional First Home Buyer Guarantee
This scheme may allow eligible buyers in regional areas like Geelong to purchase with a smaller deposit while avoiding LMI.

First Home Loan Deposit Scheme
This federal government initiative helps eligible first home buyers purchase with as little as a 5% deposit while avoiding LMI costs.

First Home Super Saver Scheme
This allows eligible individuals to save for their first home deposit within their superannuation account, potentially reducing tax obligations.

Creating Your First Home Buyer Budget

When preparing your first home buyer budget, consider these cost categories:

1. Deposit requirements (typically 5% to 20% of purchase price)
2. Loan fees and charges as outlined above
3. Stamp duty (less any applicable concessions)
4. Building and pest inspections ($300 to $800)
5. Conveyancing fees ($800 to $2,000)
6. Moving costs and immediate property expenses

First Home Buyer Checklist for Variable Rate Loans

Before submitting your application, ensure you've:

• Assessed your first home buyer eligibility for government schemes
• Obtained pre-approval to understand your borrowing capacity
• Compared multiple home loan options and their fee structures
• Calculated total costs including all fees and ongoing charges
• Considered whether features like offset accounts justify any additional costs
• Explored first home buyer grants available in your area
• Reviewed the lender's policy on interest rate discounts

Making an Informed Decision

Variable rate loans can offer flexibility and potential savings when rates fall, but they also carry the risk of increased repayments when rates rise. Understanding all associated costs helps you make an informed choice about whether a variable rate loan aligns with your financial situation and goals.

When buying your first home, working with experienced professionals who understand the local market in Belmont and greater Geelong can help ensure you're accessing appropriate loan products and taking advantage of available concessions and schemes.

The home loan application process involves numerous decisions and considerations. Having expert guidance can help you understand which loan features provide genuine value versus those that may add unnecessary costs to your loan.

Call one of our team at Mt. Pleasant Financial or book an appointment at a time that works for you to discuss your variable rate loan options and ensure you're making the most informed decision for your first home purchase.