Simple hacks to save thousands on your first home loan

Why most first home buyers choose a variable rate

Variable rates move up and down with the market, which means your repayments can change. Most first home buyers in Melbourne choose a variable rate because it offers flexibility you don't get with a fixed loan, including the ability to make extra repayments without penalty, access to offset accounts, and no break costs if you need to refinance or sell.

Consider a couple purchasing in Glen Waverley. They're using the Australian Government 5% Deposit Scheme and have saved enough for a 5% deposit plus settlement costs. They chose a variable rate because they plan to make irregular lump sum payments from bonuses and tax refunds over the next few years. With a fixed rate, those extra repayments would be capped or penalised. With a variable rate, every dollar goes straight toward reducing the principal and cutting the total interest paid over the life of the loan.

Offset accounts cut interest faster than making extra repayments alone

An offset account is a transaction account linked to your home loan. The balance in the offset account reduces the amount of interest charged on your loan without actually paying down the principal. If you have a loan balance of $500,000 and $20,000 sitting in a 100% offset account, you're only charged interest on $480,000.

This is particularly useful when you're building an emergency buffer or saving for upcoming costs like furniture, childcare, or a second car. The money remains accessible while still reducing your interest. In our experience, couples who use an offset account properly can shave years off their loan term without locking funds into the mortgage permanently.

Not all variable rate loans come with a full offset account. Some lenders offer partial offsets or only provide offset functionality on higher-rate packages. When you apply for a home loan, clarify whether the offset is 100% and whether there are monthly account fees that could erode the benefit.

Redraw vs offset - which one suits a first home buyer

Redraw and offset both let you access extra money, but they work differently. Redraw allows you to withdraw extra repayments you've already made on the loan. Offset keeps your savings separate and reduces the interest calculated daily.

Redraw can be restricted by the lender. Some lenders require a minimum redraw amount, charge a fee per withdrawal, or place limits on how often you can access funds. If the lender changes their redraw policy, your access can be reduced without much notice. Offset accounts don't carry those risks because the funds remain in your own transaction account.

For first home buyers who want certainty and regular access to surplus cash, offset is usually the better option. Redraw works if you're disciplined about leaving extra repayments untouched and only accessing them in genuine emergencies.

How interest rate discounts actually work on variable loans

Lenders advertise a standard variable rate, then apply a discount based on your deposit size, loan amount, and whether you're an owner occupier or investor. A buyer with a 10% deposit might receive a smaller discount than someone with 20%, even if they're borrowing the same amount from the same lender.

The discount isn't locked in forever. Lenders can reduce your discount over time, particularly after the first year or two. That's why refinancing becomes relevant even if the official cash rate hasn't moved. Your rate might drift higher relative to what new customers are being offered.

When comparing loan offers, look at the comparison rate and ask what discount is being applied to the standard variable rate. If the discount is conditional on maintaining a package fee or holding other products with the lender, factor that into the real cost.

Lenders Mortgage Insurance on low deposit loans

If your deposit is less than 20%, most lenders will charge Lenders Mortgage Insurance. LMI protects the lender if you default, but you pay the premium. It's typically added to your loan balance rather than paid upfront.

Under the Australian Government 5% Deposit Scheme, eligible first home buyers can purchase with just a 5% deposit and avoid paying LMI because Housing Australia guarantees the difference. This scheme has no income caps and no annual limits on the number of applicants, but it is only available through a panel of participating lenders.

If you don't qualify for the scheme or the property exceeds the regional price cap, you'll need to budget for LMI. The cost varies based on your deposit size and loan amount, but it can add tens of thousands of dollars to what you're borrowing. Some lenders also offer their own LMI waivers for certain professions or loan structures, so it's worth exploring all options before assuming LMI is unavoidable.

First home buyer stamp duty concessions in Victoria

Victoria offers a full stamp duty exemption on properties up to $600,000 for eligible first home buyers. A sliding scale concession applies between $600,001 and $750,000. Above $750,000, standard duty rates apply.

The concession applies to both new and established homes, provided the property will be your principal place of residence. You must move in within 12 months of settlement and live there for at least 12 continuous months. If you're purchasing vacant land to build on, separate thresholds and concessions apply.

In a scenario where a couple is purchasing an established unit in Chadstone at $680,000, they would receive a partial concession rather than the full exemption. The exact saving depends on the dutiable value, but the concession can reduce upfront costs by several thousand dollars, which means less needs to be borrowed or saved.

When a variable rate stops making sense

Variable rates suit buyers who want flexibility and expect to make extra repayments or refinance within a few years. They're less suitable if you need absolute certainty around repayment amounts or if you're stretching your budget to the limit and can't absorb rate rises.

If you're buying at the top of your borrowing capacity and a 0.5% rate rise would put pressure on your household budget, you might be better served by fixing part of your loan or waiting until you have a larger deposit. A split loan strategy, where part of the loan is fixed and part is variable, can give you some protection from rate rises while still allowing extra repayments on the variable portion.

Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit, income, and repayment plans to work out which loan structure actually fits what you're trying to do over the next five years.

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