Buying your first home is an exciting milestone, but understanding the fees and costs associated with variable rate loans can feel overwhelming. As first home buyers in Oakleigh navigate their home loan options, it's important to know exactly what you'll be paying beyond the interest rate itself.
Variable interest rate loans are a popular choice among first home buyers because they offer flexibility and the potential for interest rate discounts when market rates fall. However, before you apply for a home loan, understanding all the costs involved will help you prepare your first home buyer budget more accurately.
What is a Variable Interest Rate?
A variable interest rate fluctuates based on market conditions and lender decisions. Unlike a fixed interest rate that remains unchanged for a set period, variable rates can move up or down throughout the life of your first home loan. This means your repayments may change over time, which requires careful budgeting and planning.
Many lenders offer variable rate products with features like offset account facilities and redraw options, providing flexibility to manage your mortgage effectively.
Common Fees and Costs for Variable Rate Loans
When preparing your first home loan application, it's essential to factor in the following fees and costs:
Application and Establishment Fees
Most lenders charge an application fee when you submit your home loan application. This typically ranges from $300 to $700, though some lenders may waive this fee depending on the loan amount and your circumstances. Establishment fees cover the administrative costs of setting up your loan and can vary significantly between lenders.
Lenders Mortgage Insurance (LMI)
If you're applying with a 5% deposit or 10% deposit, you'll likely need to pay Lenders Mortgage Insurance (LMI). This protects the lender if you're unable to meet your repayments. LMI can cost anywhere from a few thousand to tens of thousands of dollars, depending on your loan amount and deposit size.
However, the First Home Loan Deposit Scheme and Regional First Home Buyer Guarantee can help eligible first home buyers avoid LMI with low deposit options. These government initiatives support first home buyer eligibility criteria and can significantly reduce upfront costs.
Valuation Fees
Lenders require a property valuation to confirm the home's worth before approving your loan. Valuation fees typically range from $200 to $400, though some lenders include this in their package.
Ongoing Account Fees
Variable rate loans often come with monthly or annual account-keeping fees, usually between $10 and $15 per month. While this may seem minimal, it adds up over the life of your loan.
Features That Add Value
Despite the fees involved, variable rate loans offer features that can save you money over time:
Offset Account
An offset account links to your home loan and reduces the interest you pay. For example, if you have a $400,000 loan and $20,000 in your offset account, you'll only pay interest on $380,000. This feature can save thousands of dollars over the loan term, though some lenders charge a fee for this facility.
Redraw Facility
A redraw facility allows you to access extra repayments you've made on your loan. This provides flexibility if you need funds for renovations or unexpected expenses. Some lenders offer unlimited free redraws, while others may charge a fee per transaction.
No Lock-in Periods
Unlike fixed interest rate loans, variable rate loans typically don't have lock-in periods. This means you can refinance or switch lenders without penalty if you find a more suitable home loan option.
Government Support for First Home Buyers
As a first home buyer in Oakleigh, you may be eligible for various government schemes:
- First Home Owner Grants (FHOG): Victorian first home buyers may qualify for grants when purchasing or building a new home, subject to eligibility criteria
- First Home Buyer Stamp Duty Concessions: Significant savings on stamp duty can reduce your upfront costs substantially
- First Home Super Saver Scheme: Allows you to save for your deposit through voluntary superannuation contributions, potentially reducing your tax burden
These initiatives form an important part of your first home buyer checklist and can make homeownership more achievable.
Getting Pre-Approval
Before house hunting, obtaining pre-approval gives you clarity on your borrowing capacity and strengthens your negotiating position. The pre-approval process involves submitting financial documents and having lenders assess your first home buyer eligibility.
Pre-approval typically lasts between three to six months, giving you time to find the right property while knowing your budget limitations.
Gift Deposits and Family Support
If you're struggling to save a full deposit, many lenders accept a gift deposit from family members. This can help you reach the required 5% deposit or 10% deposit threshold. However, lenders require documentation proving the funds are a genuine gift and not a loan.
Working with Blue Lion Lending
Understanding variable rate loan fees and costs is just one part of your journey to homeownership. At Blue Lion Lending, we specialise in helping first home buyers in Oakleigh understand their home loan options and find solutions that align with their financial situation.
Our team can help you:
- Compare variable interest rate products from multiple lenders
- Access interest rate discounts that may not be publicly advertised
- Navigate first home buyer grants and government schemes
- Structure your loan with features like offset accounts that suit your needs
- Understand your borrowing capacity and develop a realistic first home buyer budget
Whether you're ready to apply for a home loan or still in the planning stages, professional guidance can save you thousands of dollars and help you avoid costly mistakes.
Call one of our team or book an appointment at a time that works for you. We're here to support Oakleigh residents through every step of the home buying process.