What Are Variable Rate Loans?
A variable interest rate home loan means your interest rate can change during the loan term. Unlike a fixed interest rate that remains the same for a set period, variable rates move up or down based on market conditions and your lender's decisions. For first home buyers in Jerrabomberra, understanding these loan features is crucial when buying your first home.
Variable rate loans offer flexibility that many borrowers find valuable. When you access home loan options from banks and lenders across Australia through True North Mortgage Solutions, you'll discover various features that can benefit your financial situation.
Key Variable Rate Loan Features
Offset Account Benefits
An offset account is one of the most valuable features available with variable rate loans. This transaction account links to your home loan, and the balance reduces the loan amount on which you pay interest. For example, if you have a $400,000 loan amount and $50,000 in your offset account, you only pay interest on $350,000.
Redraw Facilities
Most variable rate loans include redraw facilities, allowing you to access additional repayments you've made. This feature provides financial flexibility while you're buying a home and beyond. You can make extra payments when your budget allows and withdraw funds when needed.
Repayment Flexibility
Variable rate loans typically offer multiple repayment options:
• Weekly, fortnightly, or monthly repayments
• Additional payment capabilities without penalties
• Split loan options combining variable and fixed portions
• Interest-only periods (subject to lender approval)
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Understanding Interest Rate Movements
When applying for a home loan with a variable interest rate, it's important to understand how rate changes affect your repayments. Interest rates can decrease, reducing your monthly payments, or increase, requiring higher repayments. Many lenders offer interest rate discounts for new customers or those with strong financial profiles.
Your borrowing capacity calculations should account for potential rate increases. Lenders typically assess your ability to service the loan at rates higher than current market levels, ensuring you can manage repayments even if rates rise.
First Home Buyer Advantages
Government Schemes and Grants
First time home buyer programs and schemes can significantly impact your loan structure:
• Home Guarantee Scheme: Reduces the deposit required, potentially eliminating lenders mortgage insurance (LMI)
• First Home Owner Grants (FHOG): Provides financial assistance that can reduce your loan amount
• Stamp duty concessions: Available in the ACT for eligible first home buyers
These benefits work particularly well with variable rate loans due to their flexibility in accommodating different loan structures and repayment strategies.
Lower Loan to Value Ratio (LVR) Benefits
Variable rate packages often provide additional features when your LVR is lower. With access to banks and lenders nationwide through True North Mortgage Solutions, you can compare packages that offer enhanced benefits for borrowers with larger deposits or those utilising first time home buyer schemes.
Application Process Considerations
The streamlined application process for variable rate loans typically requires:
• Recent bank statements (usually three months)
• Income verification documents
• Identification and employment details
• Property information once you've found your home
To get pre-approved for your first home loan, gather these documents early. Pre-approval helps you understand your borrowing capacity and shows sellers you're a serious buyer in the competitive property market.
Comparing Variable Rate Options
When evaluating variable rate loans, consider:
• Annual fees and ongoing costs
• Available features and their associated fees
• Lender policy flexibility
• Potential for future investment loan options
• Package deals that might include transaction accounts or credit cards
Even if you're not currently considering investment loan application processes, choosing a lender that offers comprehensive investment loan options can benefit you later. Your first investment property decisions will be influenced by your existing banking relationships and loan structures.
Making Your Decision
Variable rate loans suit borrowers who want flexibility and access to features like offset accounts. They work particularly well for first home buyers who expect their financial situation to improve over time, allowing them to take advantage of additional repayment capabilities and redraw facilities.
The application process becomes more straightforward when you work with experienced mortgage brokers who understand the various packages available across different lenders. True North Mortgage Solutions can help Jerrabomberra residents access home loan options that align with their specific needs and long-term financial goals.
Choosing the right variable rate loan features sets the foundation for your homeownership journey. Understanding these options helps you make informed decisions that support both your immediate home buying needs and future financial aspirations. Call one of our team or book an appointment at a time that works for you.