A Guide to Variable Rate Home Loans for First Home Buyers

Understanding Variable Rate Home Loans

As a first home buyer on the Mornington Peninsula, choosing the right home loan structure is one of the most important financial decisions you'll make. While fixed interest rate options provide certainty, variable interest rate loans offer flexibility and features that many first home buyers find valuable.

A variable interest rate means your loan rate can move up or down in response to market conditions and lender policy changes. This structure provides opportunities to benefit when rates decrease, while also giving you access to loan features that are often restricted or unavailable with fixed rate products.

Key Features of Variable Rate Loans

Variable rate home loans typically come with several features that can help you manage your mortgage more effectively:

Offset Account

An offset account is a transaction account linked to your home loan. The balance in this account offsets the amount you owe, reducing the interest charged on your mortgage. For example, if you have a $500,000 home loan and $20,000 in your offset account, you'll only pay interest on $480,000. This can significantly reduce your interest costs over time while keeping your savings accessible.

Redraw Facility

Most variable rate loans include a redraw facility, allowing you to access additional repayments you've made above your minimum requirement. This gives you flexibility to pay extra when you can afford it, while knowing you can access those funds if needed for emergencies or opportunities.

Additional Repayments

Variable rate loans typically allow unlimited additional repayments without penalties. This means you can pay more than your minimum repayment whenever your budget allows, helping you reduce your loan balance faster and save on interest over the life of your first home loan.

First Home Buyer Eligibility and Support

Understanding first home buyer eligibility requirements is crucial before you apply for a home loan. The Mornington Peninsula falls within certain regions that may qualify for specific assistance programs.

First Home Loan Deposit Scheme

The First Home Loan Deposit Scheme helps eligible first home buyers purchase a property with a smaller deposit. You may be able to buy with a 5% deposit without paying Lenders Mortgage Insurance (LMI), which can save thousands of dollars in upfront costs.

Regional First Home Buyer Guarantee

Depending on your specific location within the Mornington Peninsula, you may be eligible for the Regional First Home Buyer Guarantee, which offers similar benefits to help you enter the property market sooner.

First Home Owner Grants (FHOG)

Victoria offers first home owner grants for eligible buyers purchasing or building a new home. These first home buyer grants can provide additional funds to help with your deposit or other purchase costs.

Low Deposit Options for First Home Buyers

Many first home buyers worry about saving a large deposit, but several low deposit options are available:

• 5% deposit: Through government schemes or with LMI
• 10% deposit: More widely available across lenders with lower LMI costs
• Gift deposit: Many lenders accept genuine gifts from family members to help boost your deposit
• First Home Super Saver Scheme: Allows you to save for your deposit within your superannuation fund with potential tax benefits

Each option has different requirements and costs, so it's important to understand which approach suits your circumstances when you apply for a home loan.

First Home Buyer Budget and Costs

Creating a realistic first home buyer budget involves understanding all costs associated with buying your first home:

1. Deposit (typically 5-20% of purchase price)
2. Lenders Mortgage Insurance (LMI) if depositing less than 20%
3. First home buyer stamp duty concessions may reduce or eliminate stamp duty costs in Victoria
4. Conveyancing and legal fees
5. Building and pest inspections
6. Loan application and establishment fees
7. Ongoing costs including rates, insurance, and maintenance

The Home Loan Application Process

Your first home loan application journey typically follows these steps:

1. Pre-Approval

Obtaining pre-approval gives you confidence when house hunting. It shows sellers you're a serious buyer and helps you understand your borrowing capacity. Pre-approval is typically valid for 3-6 months.

2. First Home Buyer Checklist

Before submitting your first home loan application, gather:

• Proof of identity documents
• Recent payslips and tax returns
• Bank statements showing savings history
• Details of any existing debts or liabilities
• Evidence of genuine savings or deposit source

3. Property Selection and Formal Application

Once you've found your property, your mortgage broker will submit a formal home loan application with your chosen lender, including property details and contract of sale.

Understanding Interest Rate Movements

With a variable interest rate, your repayments will change when your lender adjusts rates. Some lenders offer interest rate discounts for new borrowers, larger deposits, or when you hold other products with them. Your ongoing interest rate will depend on:

• Reserve Bank of Australia policy decisions
• Your lender's funding costs and business strategy
• Competition in the mortgage market
• Your loan-to-value ratio and overall credit profile

Comparing Home Loan Options

When reviewing home loan options as a first home buyer, consider:

• Interest rate and comparison rate
• Loan features (offset account, redraw, additional repayments)
• Fees and charges
• Lender reputation and customer service
• Flexibility to switch between variable and fixed rates in future

Working with a mortgage broker can help you compare multiple lenders and find a loan structure that matches your needs and circumstances.

Making Your Variable Rate Loan Work Harder

To maximise the benefits of your variable rate home loan:

• Use your offset account as your primary transaction account
• Make additional repayments when possible
• Review your interest rate regularly to ensure it remains suitable
• Consider your loan structure as your circumstances change
• Maintain communication with your mortgage broker for ongoing advice

The team at Bayland Finance understands the local Mornington Peninsula property market and can help you understand which home loan options align with your goals when buying your first home.

Getting Started on Your First Home Journey

Buying your first home is an exciting milestone. Understanding variable interest rate loans and the support available to first home buyers positions you to make informed decisions throughout your property purchase.

Whether you're located in Mornington, Frankston, Rosebud, or elsewhere on the Peninsula, having professional guidance through the home loan application process can make a significant difference to your outcome.

Call one of our team or book an appointment at a time that works for you to discuss your first home buyer options and start your journey to home ownership.