Buying your first home is an exciting milestone, and understanding your financing options can make all the difference in your home buying journey. For first time home buyers in Australia, fixed rate loans paired with extra repayments can provide both stability and long-term savings.
What Are Fixed Rate Loans?
A fixed interest rate means your loan's interest rate remains unchanged for a set period, typically between one to five years. Unlike a variable interest rate that fluctuates with market conditions, fixed rates offer predictability in your mortgage repayments.
When you apply for a home loan with a fixed rate, you'll know exactly what your repayments will be during the fixed period. This certainty helps with budgeting and planning, particularly important when you're adjusting to homeownership costs alongside expenses like stamp duty and ongoing property maintenance.
Benefits of Fixed Rate Loans for First Home Buyers
Fixed rate loans offer several advantages for those buying their first home:
• Predictable repayments - You'll know exactly how much you need to budget each month
• Protection from rate rises - If interest rates increase, your repayments remain the same
• Financial planning - Easier to plan other expenses and savings goals
• Peace of mind - Removes uncertainty about changing repayments
Making Extra Repayments on Fixed Rate Loans
Many first home buyers wonder if they can make additional repayments on their fixed rate loan. The answer depends on your specific loan terms and lender policies. Most fixed rate loans allow some level of extra repayments, though there may be limits.
Typical extra repayment conditions include:
- Annual limits (often $10,000 to $30,000 per year)
- Percentage-based limits (usually 10-20% of the original loan amount)
- Penalties for exceeding these limits
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Book a chat with a Mortgage Broker at Personalised Finance today.
How Extra Repayments Save You Money
Even small additional amounts can significantly reduce your loan term and interest costs. Here's how extra repayments work:
• Reduces principal faster - More of your money goes toward paying down the loan amount
• Less interest over time - Lower principal means less interest calculated
• Shorter loan term - You could pay off your home years earlier
For example, on a $500,000 loan, an extra $200 monthly could save tens of thousands in interest and reduce your loan term by several years.
First Home Buyer Support in Australia
Australia first home buyers have access to various support programs that can help with your financial situation:
First Home Owner Grants (FHOG) provide financial assistance for eligible buyers purchasing new homes. The First Home Guarantee Scheme allows qualified buyers to purchase with as little as 5% deposit while avoiding lenders mortgage insurance (LMI).
Other first time home buyer schemes include:
• Stamp duty concessions or exemptions
• Shared equity programs
• First time home buyer programs through individual lenders
These packages can significantly improve your borrowing capacity and reduce upfront costs.
Choosing Between Fixed and Variable Rates
When applying for a home loan, you'll need to decide between fixed and variable interest rates, or potentially a split loan combining both. Consider these factors:
Fixed rates suit you if:
• You prefer predictable repayments
• You're concerned about potential rate rises
• You want to budget with certainty
• You plan to make regular extra repayments within limits
Variable rates might work if:
• You want flexibility with unlimited extra repayments
• You'd like access to features like an offset account
• You want to benefit if rates decrease
Getting Pre-Approved for Your First Home Loan
Before you start house hunting, consider getting pre-approved. This process involves a lender assessing your financial situation, including your income, expenses, and borrowing capacity. You'll need to provide bank statements and other financial documents during the application process.
Pre-approval helps you:
• Understand your budget before viewing properties
• Move quickly when you find the right home
• Show sellers you're a serious buyer
At Personalised Finance, we have access to home loan options from banks and lenders across Australia, helping you find suitable loan packages for your circumstances. Our borrowing capacity assessment considers your complete financial picture, including your ability to service a loan with your chosen repayment structure.
Making Your Decision
Choosing the right home loan structure involves balancing your need for certainty with flexibility. Fixed rates with extra repayment options can provide an excellent middle ground, offering stability while allowing you to pay down your loan faster.
Remember that your loan to value ratio (LVR) will affect your options and costs. A lower LVR may qualify you for interest rate discounts and help you avoid LMI.
The property market and your personal circumstances will influence the right choice for your situation. Consider speaking with mortgage broking professionals who can access banks and lenders nationwide to compare your options.
Whether you're considering your first investment property down the track or focusing solely on your primary residence, understanding these fundamentals will serve you well throughout your property journey.
Call one of our team or book an appointment at a time that works for you to discuss your first home buyer options and find the right loan structure for your needs.
