What are Variable Rate Loans and Extra Repayments for Defence?

As a current or former Australian Defence Force member, you're in a unique position when it comes to buying your first home. With access to specific first time home buyer schemes and the Home Guarantee Scheme, plus your stable income and employment history, you have advantages that can help you enter the property market sooner than you might think.

When applying for a home loan, one of the biggest decisions you'll face is choosing between a variable interest rate or fixed interest rate. Let's explore why variable rate loans might work well for Defence members, particularly when combined with extra repayments.

Understanding Variable Interest Rates

A variable interest rate moves up and down based on market conditions and your lender's decisions. While this might sound unpredictable, variable rates often start lower than fixed rates and give you more flexibility with your repayments.

For Defence members who receive regular pay increases, allowances, and potentially deployment bonuses, this flexibility can be particularly valuable. You can take advantage of:

• Lower initial interest rates compared to fixed loans
• The ability to make extra repayments without penalties
• Access to offset account features
• No restrictions on loan amount increases or refinancing

The Power of Extra Repayments

Making extra repayments on your home loan can significantly reduce both the total interest you pay and your loan term. For a typical $500,000 loan at a 6% interest rate over 30 years, an extra $200 per month could save you over $80,000 in interest and reduce your loan term by about 6 years.

As a Defence member, you might have opportunities to make extra repayments through:

• Deployment allowances and tax-free earnings
• Annual leave payouts
• Regular salary increases
• Bonus payments or allowances

How Extra Repayments Work with Variable Loans

With a variable interest rate loan, extra repayments typically come with fewer restrictions. Most lenders allow you to:

1. Make unlimited additional repayments
2. Access a redraw facility to withdraw extra funds if needed
3. Link an offset account to reduce interest charges
4. Split your loan between variable and fixed portions

This flexibility is particularly valuable for Defence personnel who may face posting changes, deployment opportunities, or varying income levels throughout their career.

Defence-Specific Considerations

When you get pre-approved for your first home loan, discuss these Defence-specific factors with your mortgage broker:

Income Stability: Your secure employment can help with borrowing capacity calculations, even if you're planning to make extra repayments to reduce the loan term.

Posting Flexibility: Variable loans often have fewer restrictions if you need to refinance due to a posting to a different state or if your financial situation changes.

Investment Opportunities: If you're considering keeping your first property as an investment when you're posted elsewhere, variable rates can provide more options for restructuring your loan.

Making the Most of First Home Buyer Benefits

Defence members have access to various first home owner grants (FHOG) and first time home buyer programs. When combined with a variable rate loan strategy, these benefits include:

• Reduced or eliminated lenders mortgage insurance (LMI) through the Home Guarantee Scheme
• State-based first home buyer concessions on stamp duty
• Access to home loan options from banks and lenders across Australia
• Potential interest rate discounts for Defence members

Setting Up Your Repayment Strategy

Before you apply for a home loan, consider your repayment strategy:

1. Calculate your base repayments based on your loan amount and current variable interest rate
2. Identify extra funds you can regularly contribute
3. Set up automatic transfers to ensure consistency
4. Review your loan to value ratio (LVR) regularly as extra repayments build equity

Working with Defence Loans

Navigating the application process and understanding all your options can feel overwhelming when buying your first home. Defence Loans specialises in working with current and former ADF members, understanding the unique aspects of military life and how they affect your borrowing capacity and loan structure.

We have access to banks and lenders nationwide and can help you understand which variable rate packages offer the most value for your situation. Our streamlined application process takes into account Defence-specific income sources and employment patterns.

Whether you're looking at your first home loan or considering future investment loan options, we can help you understand how variable rates and extra repayment strategies align with your long-term financial goals.

Choosing a variable interest rate with an extra repayment strategy can be a powerful combination for Defence members. Your stable income, regular pay increases, and access to additional earnings through deployments and allowances position you well to take advantage of this approach.

Call one of our team or book an appointment at a time that works for you to discuss how variable rate loans and extra repayment strategies can help you achieve your home ownership goals sooner.