The Costs and Fees of Variable Rate Home Loans

When you're buying a home as a current or former Australian Defence Force member, understanding the full cost structure of variable rate home loans is crucial for making informed financial decisions. Variable home loan rates can fluctuate over time, but the fees and costs associated with these loans remain an important factor in your overall borrowing expenses.

Understanding Variable Interest Rates

A variable interest rate home loan means your home loan interest rate can change based on market conditions and your lender's decisions. Unlike a fixed interest rate home loan where the rate stays the same for a set period, variable rates offer flexibility but come with uncertainty. This flexibility often allows you to access features like offset accounts and the ability to make additional repayments without penalty.

Application and Setup Costs

When applying for a home loan, you'll encounter several upfront costs that affect your financial situation:

• Application fees: Some lenders charge between $300 to $600 for processing your Home Loan application
• Valuation fees: Banks typically require property valuations costing $200 to $600
• Settlement fees: Legal costs for transferring property ownership range from $800 to $1,500
• Loan establishment fees: These can range from $0 to $1,000 depending on your lender

The streamlined application process available to Defence Force members through specialised brokers can help you understand which lenders waive certain fees, potentially saving you thousands of dollars.

Ongoing Monthly Costs

Beyond the initial setup, variable rate loans include regular expenses:

• Monthly account keeping fees: Typically $10 to $15 per month
• Package fees: Annual fees of $300 to $400 for loan packages that may include interest rate discounts
• Offset account fees: Some lenders charge monthly fees for offset accounts, while others include them in loan packages

Lenders Mortgage Insurance (LMI)

If your loan amount exceeds 80% of the property value (loan to value ratio or LVR), you'll need to pay lenders mortgage insurance. LMI costs vary significantly based on your loan amount and LVR:

• For a $500,000 loan at 85% LVR: approximately $4,500 to $6,000
• For a $700,000 loan at 90% LVR: approximately $15,000 to $20,000
• For a $400,000 loan at 95% LVR: approximately $12,000 to $15,000

Defence Force members may access LMI waivers or discounts through certain lenders, making it important to explore all Home Loan options available to you.

State-Based Costs and Stamp Duty

Stamp duty varies by state and can significantly impact your budget when buying a home:

• New South Wales: First home buyers may receive exemptions on properties up to $650,000
• Victoria: Concessions available for eligible first home buyers
• Queensland: First home buyer grants and concessions may apply
• Other states: Each has different stamp duty rates and concessions

Some states offer stamp duty concessions for Defence Force members, so research your specific location's benefits.

Calculating Home Loan Repayments

When calculating home loan repayments, factor in all costs, not just the principal and interest. Your borrowing capacity depends on:

• Your income and expenses shown in bank statements
• The property market conditions in your area
• Your deposit amount and home equity
• Current Home Loan Rates offered by various lenders

Getting Pre-Approved

Home Loan pre-approval helps you understand your borrowing capacity and gives you confidence when making offers. The application process involves providing bank statements, proof of income, and details about your financial situation. Getting pre-approved doesn't lock you into specific fees, allowing you to compare costs across different lenders.

Access to Multiple Lenders

Defence Force members can access Home Loan options from banks and lenders across Australia, each offering different fee structures and variable interest rates. Working with a specialist Defence Force mortgage broker helps you compare:

• Different variable rate options
• Fee structures and ongoing costs
• Available interest rate discounts
• Loan features like offset accounts
• LMI waivers or discounts

Remember that the lowest interest rate doesn't always mean the lowest total cost when fees are included.

Understanding all costs involved in variable rate home loans empowers you to make informed decisions about your property purchase. Consider both upfront and ongoing expenses when comparing lenders, and remember that your unique situation as a Defence Force member may qualify you for special rates and fee waivers.

Call one of our team or book an appointment at a time that works for you to discuss your specific needs and access the full range of Defence Force home loan benefits available.