If you're buying your first home in Geelong, a variable rate loan lets your repayments move with the lender's rate and gives you features a fixed loan often limits. The trade-off is that your repayments can rise as well as fall.
The questions first home buyers ask rarely change. Can I pay extra when I get a bonus? Can I keep my savings handy? What happens if rates move? A variable loan answers the first two well. The third needs a plan.
What Is a Variable Interest Rate and How Does It Work?
A variable interest rate is a rate your lender can change over the life of the loan, so your repayments can go up or down. Lenders often adjust their rates after the Reserve Bank changes the cash rate, but they decide for themselves.
That movement is the main risk. A buyer who stretches to the very edge of their budget has little room if repayments rise. Before you choose, test your budget at a rate higher than the one you are quoted. Our mortgage repayment calculator makes that quick to do.
Which Variable Rate Features Matter Most for a First Home Buyer?
For most first home buyers, the features worth weighing are an offset account, redraw, extra repayments and the ability to split the loan. Each can reduce interest, but each can also come with a fee or a habit you need to keep.
Fixed loans often cap how much extra you can pay, while variable loans generally allow extra repayments, though the details differ by lender. Some loans charge an annual package fee for the full set of features, so compare that cost against what you will genuinely use.
Offset Account vs Redraw: Which Suits You?
An offset account is a transaction account linked to your loan, where the balance reduces the interest charged. Redraw lets you pull back extra repayments you have already made. An offset keeps your savings separate and easy to reach, while redraw can have access rules set by the lender.
Consider a Newtown couple who save a small amount each pay and keep a buffer for car and house repairs. If that buffer sits in an offset account, interest is worked out on the loan balance minus the offset balance. Their money stays available for day to day needs, and the loan interest is lower while it sits there.
The outcome depends on discipline. If they dip into that buffer often, the interest saving shrinks. They would also want to check whether the loan with the offset carries a higher rate or a yearly fee, because that cost can eat into the benefit. A broker can compare these details across lenders for you.
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How Much Could Repayments Change on a Variable Loan?
Repayments on a variable loan can change whenever the rate changes, so it helps to see the size of the movement before you commit. The figures below are illustrative only and use a rate of 6.75% p.a.
Take a $600,000 loan over 30 years at 6.75% p.a. The monthly principal and interest repayment comes to roughly $3,891. If the rate rose by 1 percentage point to 7.75% p.a., the repayment would be roughly $4,298, which is about $407 more each month. That is an illustration, not a forecast.
The lesson is to check that your budget holds at the higher figure. If it only works at the lower one, a smaller loan or a different structure may suit you better.
Can You Use Variable Rate Loans With First Home Buyer Schemes?
It depends on the participating lender. The loan is provided by that lender, so ask which rate types and features it offers with the scheme.
The scheme lets eligible first home buyers purchase with a 5% deposit, with Housing Australia backing the lender so no Lenders Mortgage Insurance applies. Applications go only through a participating lender. The 5% Deposit Scheme price cap in Victoria is $950,000 for Melbourne and the named regional centre of Geelong, and $650,000 for other areas of Victoria. The cap for a specific property depends on its suburb and postcode in Housing Australia's postcode search tool. Check your Newtown address there before you make an offer.
There is a cost to a low deposit. A smaller deposit means a larger loan, which means higher repayments and more interest over time. Our first home buyers guide explains the options in more detail.
Victorian First Home Buyer Concessions to Factor Into Your Budget
Victoria has a stamp duty exemption for first home buyers on a dutiable value up to $600,000, with a concession between $600,000 and $750,000. Standard rates apply above $750,000. The buyer must live in the home as their principal place of residence for at least 12 months, starting within 12 months of settlement.
The Victorian first home owner grant is $10,000, but it applies only to new homes with a dutiable value up to $750,000, not established homes. Concessions change, so confirm them with the State Revenue Office before you sign a contract. Savings from these concessions can go towards your deposit or a buffer in your offset account.
Pre-Approval and Choosing Your Loan Structure in Geelong
Pre-approval gives you an idea of what a lender may let you borrow before you start making offers. It is not a final approval, and the lender will still assess the property and your circumstances.
Before you apply, it helps to know your borrowing capacity and how different loan structures sit within it. Some buyers choose to split their loan, with part on a variable rate for flexibility and part fixed for certainty. The trade-off is that the fixed portion usually limits extra repayments and may attract break costs if you exit early. If you want to look at the full range, see our home loans page.
If you are local, our Newtown mortgage broker page tells you how we work with buyers in the area.
We would like to help you into your first home. Call one of our team or book an appointment at a time that works for you, and we will talk through which variable loan features suit your plans.
