Variable Rate Loans and Hidden Costs for First Home Buyers

Buying your first home is an exciting milestone, but understanding the full cost of variable rate loans can feel overwhelming. Beyond the headline variable interest rate, there are numerous fees and ongoing costs that can significantly impact your financial situation. Let's break down what you need to know about variable rate loan costs as a first home buyer.

Understanding Variable Interest Rates

A variable interest rate means your repayments can change over time as the lender adjusts their rates. While this can work in your favour when rates drop, it also means your repayments could increase. Most first time home buyer programs offer variable rate options, and these often come with interest rate discounts for new customers.

When applying for a home loan, lenders will assess your borrowing capacity based on a higher interest rate than the current variable rate. This buffer ensures you can still afford repayments if rates rise.

Upfront Costs and Fees

Before you receive your loan amount, several upfront costs need consideration:

• Application fees: Some lenders charge between $300-$800 to process your application
• Valuation fees: Banks require property valuations, typically costing $200-$600
• Legal and settlement fees: Usually range from $1,200-$2,500
• Building and pest inspections: Around $400-$800 but essential for property purchases
• Stamp duty: Varies by state, though first time home buyer schemes often provide concessions

Lenders Mortgage Insurance (LMI)

If your loan to value ratio (LVR) exceeds 80%, you'll likely need to pay lenders mortgage insurance (LMI). This protects the lender if you default on your loan. LMI costs vary based on your loan amount and LVR, potentially adding thousands to your upfront costs.

However, the Home Guarantee Scheme helps eligible first home buyers avoid LMI with deposits as low as 5%. This government initiative provides significant benefits for qualifying applicants.

Ongoing Costs to Consider

Variable rate loans often include ongoing fees that impact your budget:

• Monthly account keeping fees: Typically $10-$15 per month
• Annual package fees: Some loan packages charge $300-$400 annually
• Offset account fees: Monthly fees for maintaining offset accounts
• Redraw fees: Charges for accessing extra repayments you've made

First Home Owner Benefits and Packages

Many lenders offer special packages for first time home buyers, including:

• Waived application fees
• Reduced ongoing fees for the first year
• Access to offset account facilities
• Professional fee rebates
• Interest rate discounts for the initial period

First home owner grants (FHOG) are also available in most states, providing cash contributions toward your purchase. These grants work alongside various first time home buyer programs to improve affordability.

Comparing Costs Across Lenders

Different lenders structure their fees differently. Some may offer lower variable interest rates but charge higher ongoing fees. Others might waive certain costs but have higher establishment fees. When you access Home Loan options from banks and lenders across Australia, comparing the total cost over time becomes crucial.

Personalised Finance can help you access to banks and lenders nationwide, ensuring you see the full range of available options. This comprehensive approach helps identify which variable rate loan structure suits your financial situation.

Making Your Decision

Before finalising your first Home Loan, consider:

• How long you plan to stay in the property
• Whether you want repayment flexibility through offset accounts
• Your comfort level with potential rate increases
• The total cost including all fees over your intended loan term

The property market conditions and your personal circumstances will influence which loan features provide the most value. Some borrowers prefer the flexibility of variable rates, while others choose fixed interest rate options for certainty.

Getting Pre-Approved

Once you understand the costs involved, getting pre-approved gives you confidence when making offers. The application process requires recent bank statements, employment verification, and details about your financial commitments. Pre-approval also helps you understand your true borrowing capacity after accounting for all associated costs.

A streamlined application process can help you secure your loan faster, especially important in active property markets. Having all your documentation ready and understanding the fee structure beforehand speeds up the approval process.

Understanding variable rate loan costs empowers you to make informed decisions about buying your first home. While the fees and charges might seem overwhelming initially, proper planning and professional guidance can help you manage these costs effectively.

Call one of our team or book an appointment at a time that works for you to discuss your variable rate loan options and get personalised advice about managing the associated costs.