What Is a Variable Interest Rate?
When you're buying your first home, one of the biggest decisions you'll face is choosing between a variable interest rate and a fixed interest rate. A variable interest rate loan means your interest rate can move up or down based on market conditions and lender decisions. While this might sound uncertain, variable rate loans come with features and flexibility that many first home buyers find valuable.
Unlike fixed rate loans where your rate stays the same for a set period, variable rates respond to changes in the official cash rate set by the Reserve Bank of Australia. This means your repayments can change over time, which is something to factor into your first home buyer budget.
Key Benefits of Variable Rate Loans
Variable rate home loans offer several advantages that make them popular among first home buyers:
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Offset account access: Many variable loans include an offset account, which is a transaction account linked to your home loan. The balance in this account offsets your loan balance, potentially saving you thousands in interest over the life of your loan.
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Redraw facility: If you make extra repayments, a redraw facility lets you access those funds if you need them later. This provides a financial safety net while still reducing your interest.
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No break costs: Unlike fixed loans, you won't face penalties if you want to refinance, sell your property, or make large extra repayments.
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Interest rate discounts: When market rates drop, your rate typically drops too, which means lower repayments without having to do anything.
Understanding Your First Home Buyer Eligibility
Before diving into variable rate options, it's important to understand your first home buyer eligibility criteria. In NSW, first home buyers can access various schemes and concessions that make entering the property market more achievable.
The First Home Loan Deposit Scheme allows eligible buyers to purchase a home with just a 5% deposit without paying Lenders Mortgage Insurance (LMI). There's also the Regional first home buyer Guarantee for those looking at properties outside major cities. Understanding these programs is crucial when planning your first home loan application.
Low Deposit Options for NSW First Home Buyers
One of the biggest hurdles for first home buyers is saving a deposit. The good news is that several low deposit options exist:
- 5% deposit: Through government schemes, you can apply for a home loan with just 5% saved
- 10% deposit: Many lenders offer competitive variable rate loans at this deposit level
- Gift deposit: Some lenders accept genuine savings combined with gift funds from family members
Variable rate loans are available across all these deposit levels, and they often come with more flexible features than their fixed-rate counterparts.
First Home Owner Grants and Stamp Duty Concessions
NSW first home owner grants (FHOG) and first home buyer stamp duty concessions can significantly reduce your upfront costs. Currently, eligible buyers can receive grants for purchasing or building a new home, and stamp duty exemptions or concessions apply to properties under certain price thresholds.
These savings can be substantial, sometimes tens of thousands of dollars, which could be redirected into your offset account to reduce interest on your variable rate loan. Your finance broker can help you understand what you're entitled to when you apply for a home loan.
The First Home Super Saver Scheme
The first home super saver scheme allows you to save for your deposit inside your superannuation fund, where you'll benefit from concessional tax treatment. You can then withdraw these contributions (up to certain limits) when you're ready for your first home loan application.
This scheme works particularly well with variable rate loans because the flexibility of these loans means you can make extra repayments from day one if you have additional funds available after purchase.
Variable Rate Loans and Lenders Mortgage Insurance
If you're borrowing more than 80% of the property value, you'll typically need to pay Lenders Mortgage Insurance (LMI). However, several options can help you avoid or reduce this cost:
- Government schemes that waive LMI for eligible first home buyers
- Guarantor loans where a family member uses their property as security
- LMI waivers offered by certain lenders for specific professions
Variable rate loans are available with all these options, giving you flexibility in how you structure your first home loan.
Getting Pre-Approval Before You Buy
Before you start seriously looking at properties, getting pre-approval is a smart move. This process gives you a clear understanding of your borrowing capacity and shows sellers you're a serious buyer.
Pre-approval for a variable rate loan typically includes:
- Assessment of your income and expenses
- Review of your savings and deposit
- Credit check and employment verification
- Confirmation of the loan amount you can borrow
This doesn't lock you into a specific interest rate if you're getting a variable loan, but it does give you certainty about your budget when house hunting.
Your First Home Buyer Checklist
To help you prepare for your first home loan application, here's what you'll need:
- Proof of income (payslips, tax returns, employment contracts)
- Bank statements showing your savings history
- Identification documents
- Details of any other debts or financial commitments
- Information about the property you want to purchase
Having these documents ready will speed up your home loan application process and get you closer to owning your first home.
Making the Right Choice for Your Situation
Variable rate loans offer flexibility and features that suit many first home buyers in NSW. The ability to use an offset account, make unlimited extra repayments, and benefit from rate decreases makes them an attractive option. However, the right choice depends on your personal circumstances, risk tolerance, and financial goals.
Some buyers prefer the certainty of knowing exactly what their repayments will be, while others value the flexibility and potential savings that variable rates offer. There's no one-size-fits-all answer, which is why speaking with an experienced mortgage broker is so valuable.
Working with a specialist in home loans for first home buyers means you'll get tailored advice based on your situation, access to multiple lenders, and support throughout the entire process.
Ready to Take the Next Step?
Buying your first home is an exciting milestone, and choosing the right home loan options is crucial to your success. Whether a variable interest rate loan is right for you depends on many factors, including your financial situation, property goals, and comfort with potential rate changes.
At FHOG, we specialise in helping first home buyers across NSW understand their options and find the right loan structure for their needs. We'll help you work through the first home buyer checklist, assess your eligibility for grants and concessions, and guide you through every step of your first home loan application.
Call one of our team or book an appointment at a time that works for you. Let's discuss your variable rate loan options and get you moving towards owning your first home.