Do You Know the Fees and Costs of Variable Rate Loans?

Understanding Variable Rate Loans for First Home Buyers

Buying your first home in Ellenbrook is an exciting milestone, but understanding the fees and costs associated with variable interest rate loans is crucial for your first home buyer budget. Variable interest rate home loans offer flexibility that many first home buyers find appealing, but they come with various costs that extend beyond the advertised interest rate.

When you apply for a home loan with a variable interest rate, you're choosing a product where the interest rate can move up or down based on market conditions and lender decisions. This flexibility can work in your favour when rates decrease, but it's important to understand all the associated costs before committing.

Initial Costs When Applying for Your First Home Loan

The first home loan application process involves several upfront expenses that first home buyers need to factor into their first home buyer checklist:

Application Fees: Some lenders charge an application fee when you submit your first home loan application, though many lenders have removed this cost in recent years.

Valuation Fees: Lenders typically require a professional property valuation to assess the property's worth. This cost can range from $200 to $600 depending on the property type and location in Ellenbrook.

Settlement Fees: These cover the legal costs of transferring property ownership and can vary between lenders, typically ranging from $300 to $1,000.

Lenders Mortgage Insurance (LMI): If you're purchasing with a deposit under 20%, you'll likely need to pay LMI. This insurance protects the lender if you default on your loan. For first home buyers using low deposit options like a 5% deposit or 10% deposit, LMI can add thousands to your upfront costs. However, schemes like the First Home Loan Deposit Scheme or Regional first home buyer Guarantee may help you avoid LMI even with a smaller deposit.

Government Support for First Home Buyers

Ellenbrook residents have access to various government initiatives designed to support first home buyer eligibility:

• First home owner grants (FHOG) can provide financial assistance
• First home buyer stamp duty concessions can reduce upfront costs significantly
• The first home super saver scheme allows you to save for your deposit through superannuation
• First home buyer grants may be available depending on your circumstances

Our team at Solve It Finance can help you identify which schemes apply to your situation and ensure you maximise available benefits.

Ongoing Costs of Variable Rate Loans

Beyond the initial expenses, variable rate loans come with ongoing fees that impact your first home buyer budget:

Monthly Account Fees: Some lenders charge a monthly account keeping fee, typically between $10 and $15 per month. While this might seem small, it adds up to $120-$180 annually.

Annual Package Fees: If you've chosen a packaged home loan with additional features, you may pay an annual fee ranging from $200 to $400.

Interest Rate Costs: The variable interest rate itself is your primary ongoing cost. Even small changes in your interest rate can significantly impact your monthly repayments on a $400,000 loan over 30 years.

Features That Add Value Despite Costs

Many variable rate loans include features that provide value and flexibility:

Offset Account: An offset account links to your home loan and reduces the interest you pay by offsetting your loan balance with your savings. While some lenders charge a fee for this feature, the interest savings often outweigh the cost.

Redraw Facility: The redraw feature allows you to access extra repayments you've made. Some lenders offer this for a small fee per transaction, while others provide it at no cost.

These features can help you pay off your first Home Loan faster and provide financial flexibility as your circumstances change.

Additional Costs to Consider

Discharge Fees: When you eventually pay off your loan or refinance, you'll typically pay a discharge fee of $150 to $400.

Break Costs: While less common with variable rate loans, switching lenders or making large additional payments may incur costs depending on your loan terms.

Gift Deposit Documentation: If you're using a gift deposit from family members, there may be legal fees associated with preparing the required statutory declarations.

Getting Pre-Approval Without Breaking the Bank

Obtaining pre-approval is a valuable step in your home buying journey. Most lenders offer pre-approval at no cost, giving you confidence about your borrowing capacity before you start house hunting in Ellenbrook.

Pre-approval helps you:

1. Understand your realistic budget
2. Show sellers you're a serious buyer
3. Move quickly when you find the right property
4. Identify any issues with your first home buyer eligibility early

Comparing Home Loan Options

When reviewing different Home Loan options, don't focus solely on the interest rate. A loan with a slightly higher interest rate might have lower fees, better features, or more flexibility that makes it more suitable for your needs.

Consider:

• Total upfront costs including LMI
• Ongoing monthly and annual fees
• Available features like offset account and redraw
• Potential interest rate discounts for maintaining certain account balances
• Flexibility to make extra repayments

Our mortgage broking team can help you compare home loans from multiple lenders to find the right fit for your circumstances.

Making Informed Decisions in Ellenbrook

As first home buyers in Ellenbrook, understanding the complete cost picture of variable rate loans empowers you to make informed decisions. While a fixed interest rate might seem appealing for certainty, variable rate loans often provide more flexibility and features that can save you money over the long term.

Variable interest rate loans are particularly suitable if you:

• Want to make extra repayments without penalty
• Value the flexibility of features like offset accounts
• Believe interest rates may decrease
• Want to potentially benefit from interest rate discounts
• Prefer not to worry about fixed rate expiry periods

Remembering that every first home buyer's situation is unique, what works for one person may not suit another. Taking time to understand your options, calculate the true costs, and seek professional advice will help you make the right choice for your financial future.

The team at Solve It Finance specialises in helping Ellenbrook residents find suitable home loan solutions. We take the time to explain all fees and costs associated with your home loan application, ensuring there are no surprises down the track.

Call one of our team or book an appointment at a time that works for you to discuss your first home buyer journey and explore your variable rate loan options.