What are Variable Rate Loans and Extra Repayments?

Understanding Variable Interest Rates for Your First Home Loan

As a Department of Home Affairs employee considering buying your first home, you'll encounter many terms during your first home loan application. One of the most important decisions you'll make is choosing between a variable interest rate and a fixed interest rate. Let's talk about variable rate loans and why making extra repayments can work in your favour.

A variable interest rate moves up or down based on market conditions and your lender's decisions. Unlike a fixed interest rate that stays the same for an agreed period, variable rates offer flexibility that can benefit first home buyers who want to pay off their mortgage faster.

Why First Home Buyers Choose Variable Rate Loans

When you apply for a home loan as a first home buyer, understanding your home loan options is crucial. Variable rate loans come with features that fixed rate loans typically don't offer:

• Extra repayments without penalties – Pay more than your minimum repayment whenever you can
• Offset account access – Link a transaction account to reduce interest on your loan
• Redraw facilities – Access extra money you've paid if needed
• Potential interest rate discounts – Benefit when rates decrease in the market

These features make variable rate loans particularly attractive for public servants with stable employment, like Department of Home Affairs staff. Many first home buyers find that the flexibility outweighs the uncertainty of rate movements.

The Power of Making Extra Repayments

One of the most valuable features of a variable interest rate loan is the ability to make extra repayments without penalty. Even small additional amounts can significantly reduce your loan term and the total interest you'll pay over time.

Let's say you have a $500,000 home loan with a 6% interest rate over 30 years. Your minimum monthly repayment would be around $2,997. By adding just $500 extra each month, you could:

• Reduce your loan term by approximately 7 years
• Save over $100,000 in interest payments
• Build equity in your home faster

For Department of Home Affairs employees, your secure income position makes planning these extra repayments more manageable. Consider setting up automatic transfers after each pay cycle to make this process effortless.

Low Deposit Options for First Home Buyers

Many first home buyers worry about saving a large deposit. The good news is that various low deposit options exist specifically for people in your position:

First Home Loan Deposit Scheme: This government initiative allows eligible first home buyers to purchase a property with just a 5% deposit without paying Lenders Mortgage Insurance (LMI). Public Home Loans specialises in helping Department of Home Affairs employees access schemes like the Home Guarantee Scheme.

Regional First Home Buyer Guarantee: If you're considering buying in regional areas, this scheme offers similar benefits with potentially more property choices.

10% Deposit Options: Many lenders offer low deposit loans with just 10% down, though you'll typically pay LMI unless you qualify for special waivers available to public servants.

You can also use a gift deposit from family members to boost your deposit amount. When you're ready to apply for a home loan, having these options discussed with a specialist broker makes the process more manageable.

Getting Pre-Approval for Your First Home Loan Application

Before you start house hunting, obtaining pre-approval is a smart move. Pre-approval tells you:

• How much you can borrow
• Your estimated repayments
• What interest rate you might receive
• Your borrowing capacity

As a Department of Home Affairs employee, you may have access to interest rate discounts that aren't widely advertised. Public Home Loans works specifically with public servants and understands the lending criteria that favour your employment type.

First Home Buyer Checklist and Budget Planning

When preparing your first home buyer budget, remember to account for more than just the property price:

1. Deposit (5% to 20% of property value)
2. First home buyer stamp duty concessions – Check your state's eligibility requirements
3. Lenders Mortgage Insurance (if deposit is less than 20%)
4. Conveyancing and legal fees ($1,500 to $3,000)
5. Building and pest inspections ($400 to $800)
6. Moving costs and initial furniture

Don't forget to check your eligibility for first home owner grants (FHOG) and first home buyer stamp duty concessions, which vary by state but can save you thousands of dollars.

Using an Offset Account with Your Variable Rate Loan

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 $400,000 loan and $20,000 in your offset account, you'll only pay interest on $380,000. The more you keep in this account, the less interest you pay. This feature is typically only available with variable interest rate loans.

First Home Super Saver Scheme Benefits

The First Home Super Saver Scheme allows you to save money inside your superannuation fund with tax advantages. You can contribute up to $15,000 per year (maximum $50,000 total) and then withdraw these contributions plus earnings to put towards your first home deposit.

Combining this scheme with your regular savings can help you reach your deposit goal faster. As a public service employee with superannuation contributions, this is worth exploring during your first home loan application process.

Working with Specialists in Public Service Home Loans

At Public Home Loans, we understand the specific circumstances of Department of Home Affairs employees. We know which lenders offer the most favourable terms for public servants, including potential LMI waivers and preferential interest rates.

Our experience with first home buyers in the public service sector means we can guide you through:

• First home buyer eligibility requirements
• Accessing first home buyer grants
• Choosing between variable and fixed rates
• Maximising your borrowing capacity
• Understanding all associated costs

Your stable employment with the Department of Home Affairs is viewed favourably by lenders, and we know how to present your application to achieve the outcome you want.

Taking Your Next Steps

Buying your first home is an important milestone. With a variable rate loan and the discipline to make extra repayments when possible, you'll be building equity and working towards owning your home outright sooner than you might think.

The combination of flexible repayment options, potential rate decreases, and access to features like offset accounts and redraw facilities makes variable rate loans worth considering for your situation.

If you're ready to explore your home loan options and understand what you can afford, our team specialises in helping public servants like you. We'll walk you through the entire process, from understanding your first home buyer eligibility to settlement.

Call one of our team or book an appointment at a time that works for you. Let's discuss how we can help you achieve your goal of buying your first home with a loan structure that supports your financial future.