How to Understand Variable Rate Loan Fees and Costs

Buying your first home is an exciting milestone, particularly for residents in Bicton where the riverside lifestyle and community atmosphere make it an attractive location. Understanding the fees and costs associated with variable interest rate home loans is essential for making informed decisions about your first home loan application.

What is a Variable Interest Rate?

A variable interest rate fluctuates over the life of your home loan based on market conditions and decisions made by your lender. Unlike a fixed interest rate that remains constant for a set period, variable rates can move up or down, which directly affects your regular repayments.

Variable rate loans often provide features that fixed rate loans don't, including:

• Access to an offset account
• Redraw facilities for extra repayments
• The ability to make unlimited additional repayments
• Potential interest rate discounts
• No break fees if you decide to refinance

For many first home buyers, the flexibility of a variable interest rate makes it an appealing choice, despite the uncertainty around future rate movements.

Understanding the Upfront Costs

When applying for a home loan, several upfront costs need to be factored into your first home buyer budget:

Application Fees

Some lenders charge an application fee (also called an establishment fee) to process your first home loan application. This typically ranges from $0 to $1,000, though many lenders have removed this fee to remain attractive to borrowers.

Lenders Mortgage Insurance (LMI)

If your deposit is less than 20% of the property's value, most lenders will require you to pay Lenders Mortgage Insurance. LMI protects the lender if you default on your loan. For Bicton first home buyers utilising low deposit options like a 5% deposit or 10% deposit, LMI can add several thousand dollars to your costs.

However, programs like the First Home Loan Deposit Scheme and Regional First Home Buyer Guarantee can help eligible borrowers avoid LMI even with a smaller deposit. These government initiatives are worth exploring as part of your first home buyers journey.

Valuation Fees

Lenders need to confirm the property's value before approving your loan. Valuation fees generally range from $200 to $400, though some lenders waive this cost.

Settlement Fees

Your lender may charge settlement fees to cover the administrative costs of finalising your loan, typically between $200 and $500.

Ongoing Costs Throughout Your Loan

Beyond the initial expenses, variable rate home loans come with ongoing costs that affect your monthly budget:

Interest Charges

The interest rate is the primary ongoing cost of your home loan. With variable interest rates, this cost changes over time. Your monthly repayments will adjust accordingly, which means your first home buyer budget needs some flexibility.

Account Keeping Fees

Some lenders charge monthly or annual account keeping fees, typically ranging from $10 to $30 per month. Many modern lenders have eliminated these fees, so it's worth comparing home loan options.

Offset Account Fees

An offset account is a transaction account linked to your home loan. The balance in this account offsets the loan balance when calculating interest, potentially saving you thousands over the loan term. Some lenders charge fees for this feature, while others offer it at no additional cost.

Redraw Fees

If you make extra repayments and later want to access those funds through a redraw facility, some lenders charge a fee (typically $10 to $50 per transaction). Understanding these costs is important when considering how you'll manage extra payments.

First Home Buyer Assistance in Western Australia

Bicton residents have access to several first home buyer grants and concessions that can significantly reduce the costs of purchasing property:

First Home Owner Grants (FHOG)

The Western Australian government provides first home owner grants for eligible buyers purchasing or building a new home. The grant amount and eligibility criteria vary, so it's important to check your first home buyer eligibility.

Stamp Duty Concessions

First home buyer stamp duty concessions can save thousands of dollars on the transfer duty payable when purchasing property. Full or partial exemptions may apply depending on the property value.

First Home Super Saver Scheme

This federal scheme allows you to save money for your deposit inside your superannuation fund, taking advantage of the concessional tax treatment. You can then withdraw these savings (plus earnings) to put towards your first home.

Additional Considerations for Variable Rate Loans

When comparing home loan options, consider these factors:

Loan Features vs. Interest Rate

A slightly higher interest rate might be worthwhile if the loan includes valuable features like a no-fee offset account or unlimited redraw. Calculate the actual cost difference over time.

Gift Deposits

If family members are contributing to your deposit through a gift deposit, ensure your lender accepts this. Most do, but documentation requirements vary.

Pre-Approval Benefits

Obtaining pre-approval before house hunting gives you confidence about your borrowing capacity and shows sellers you're a serious buyer. The pre-approval process also helps identify all associated costs early.

Creating Your First Home Buyer Checklist

A comprehensive first home buyer checklist should include:

1. Review your borrowing capacity and budget
2. Research first home buyer grants and concessions
3. Compare home loan application options from multiple lenders
4. Calculate all upfront and ongoing costs
5. Obtain pre-approval
6. Factor in solicitor and conveyancing fees
7. Budget for building and pest inspections
8. Consider ongoing property costs (rates, insurance, maintenance)

Working with a Mortgage Broker in Bicton

A local mortgage broker understands the Bicton property market and can access home loan options from multiple lenders. They can help you:

• Compare interest rates and loan features
• Identify suitable low deposit options
• Navigate first home buyer schemes
• Structure your loan for maximum flexibility
• Reduce unnecessary fees and costs

Brokers can also assist with related services like refinancing in the future or exploring options for buying your first investment property down the track.

Making Your Decision

Choosing a variable rate loan requires balancing flexibility with the potential for rate changes. Consider your financial situation, risk tolerance, and how long you plan to hold the property.

Remember that the loan with the lowest interest rate isn't always the most suitable option. Factor in all fees, features, and your personal circumstances when making your decision.

For Bicton residents ready to take the next step toward homeownership, understanding these costs is crucial for making informed choices about your first home loan.

Call one of our team or book an appointment at a time that works for you to discuss your variable rate loan options and create a tailored strategy for your first home purchase.