Variable Rate Loans and What Not to Overlook

Why Variable Rate Loans Suit Most First Home Buyers

Variable rate loans remain the most widely chosen option for first home buyers entering the market.

The primary advantage is flexibility. With a variable rate loan, you typically gain access to an offset account, which reduces the interest you pay on your outstanding balance. Every dollar sitting in the offset account reduces the amount on which interest is calculated. You also retain the ability to make extra repayments without penalty, which can reduce the overall term of the loan and the total interest paid. If your circumstances change and you need to access those funds, redraw facilities allow you to withdraw extra repayments you have made above the minimum required amount.

Consider a buyer purchasing in South Perth with a 10% deposit. They secure a variable rate loan with an offset account and commit to directing their salary and savings into that account. Over time, maintaining a balance in the offset account equivalent to several months of living expenses reduces the interest charged each month. This approach works particularly well for buyers who receive irregular income or expect their financial position to improve in the coming years.

How the Australian Government 5% Deposit Scheme Works

The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase a property with a deposit of just 5% without paying lenders mortgage insurance.

Under this scheme, Housing Australia guarantees the difference between your deposit and 20% of the property value. Applications are made through a participating lender, not directly to Housing Australia. The scheme is available through a panel of 31 lenders, including three major banks and 28 non-major lenders. No income caps apply, and there are no annual place limits.

For buyers in South Perth, the property price cap is $1,500,000, which covers the majority of entry-level homes and apartments in the area. The scheme applies to both new and established properties, and it can be used alongside state-based stamp duty concessions and grants where applicable. Single parents or legal guardians can access the scheme with a deposit as low as 2%.

In our experience, buyers who meet the eligibility criteria for the 5% Deposit Scheme often retain stronger cash reserves after settlement, which provides a buffer for unexpected costs or allows them to build an offset account balance more quickly.

What First Home Buyer Stamp Duty Concessions Apply in Western Australia

Western Australia offers stamp duty concessions under the First Home Owner Rate and additional rebates for off-the-plan purchases.

For established homes and house and land packages, the full duty exemption applies to properties valued up to $430,000, phasing out to $530,000. From 21 March 2025, broader concessions apply up to $700,000 in the Perth Metropolitan and Peel regions, which includes South Perth. For vacant land, the full exemption applies up to $300,000, with a phase-out to $400,000. Off-the-plan apartment purchases attract a 75% rebate on stamp duty, capped at $50,000.

These concessions can be combined with the Australian Government 5% Deposit Scheme. A buyer purchasing an established home in South Perth at $650,000 with a 5% deposit would benefit from both the duty concession and the removal of lenders mortgage insurance, reducing upfront costs significantly.

First Home Owner Grant Eligibility in Western Australia

The First Home Owner Grant in Western Australia provides $10,000 for buyers of new homes only.

The property value cap is $750,000 south of the 26th parallel and $1,000,000 north of that line. South Perth falls within the southern cap. The grant does not apply to established homes. To qualify, you must be a natural person, an Australian citizen or permanent resident, and at least 18 years of age. You must not have previously received a first home owner grant in any state or territory, and you must not have owned a home anywhere in Australia before 1 July 2000.

The grant is paid after settlement and is typically applied directly to your loan balance by the lender. It can be used alongside stamp duty concessions and the Australian Government 5% Deposit Scheme, though it cannot be combined with the Help to Buy scheme.

Offset Accounts Versus Redraw Facilities

An offset account is a transaction account linked to your home loan. The balance in the offset account reduces the loan balance on which interest is calculated.

A redraw facility allows you to withdraw extra repayments you have made above the minimum required amount. Both features are common with variable rate loans, but they function differently. An offset account provides immediate access to your funds without needing to apply or wait for approval. Redraw facilities may involve a processing time, and some lenders impose restrictions on how frequently you can redraw or charge fees for each transaction.

For first home buyers who want to maintain liquidity while minimising interest, an offset account is generally the more flexible option. Redraw works well if you plan to park extra repayments long-term and only access them in specific circumstances, such as funding a renovation or covering an emergency expense.

How Much Deposit Do You Actually Need

The deposit you need depends on the loan structure and whether you use a government scheme.

With the Australian Government 5% Deposit Scheme, you can purchase with a 5% deposit and avoid lenders mortgage insurance. Without the scheme, most lenders require a minimum deposit of 5% to 10%, but you will pay lenders mortgage insurance if your deposit is below 20%. LMI is a one-off premium that protects the lender if you default on the loan. The premium increases as your deposit decreases and varies based on the loan amount and lender.

Genuine savings are typically required to demonstrate your ability to save and manage money. Most lenders expect at least half of your deposit to come from genuine savings, which means funds held in your account for at least three months. Gifted deposits from immediate family members are generally acceptable for the remainder, provided the gift is documented and does not need to be repaid.

For buyers in South Perth, a combination of genuine savings and a gifted deposit can be structured to meet the 5% threshold under the government scheme, reducing the need to delay the purchase while accumulating a larger deposit.

Interest Rate Discounts and How They Are Applied

Interest rate discounts are reductions applied to a lender's standard variable rate, and they are typically negotiated at the time of application.

The discount offered depends on several factors, including the loan amount, deposit size, and your financial profile. A larger deposit generally attracts a higher discount. Lenders also consider whether you bundle other products, such as insurance or transaction accounts, though this is not always necessary to secure a competitive rate.

Variable rates fluctuate over time as lenders adjust their rates in response to changes in the official cash rate and funding costs. The discount, however, typically remains fixed for the life of the loan unless the loan product changes or you refinance. This means that if the lender increases its standard variable rate, your rate increases by the same amount, but the discount continues to apply.

In our experience, buyers who obtain pre-approval before attending auctions or making offers are often in a stronger position to negotiate rate discounts, as they are perceived as lower risk by the lender.

What Happens After You Apply for Pre-Approval

Pre-approval provides conditional confirmation that a lender is willing to lend you a specified amount, subject to final checks.

The lender assesses your income, expenses, existing debts, and credit history during the pre-approval process. You are typically required to provide recent payslips, tax returns if self-employed, bank statements, and identification. The lender also conducts a credit check, which is recorded on your credit file.

Pre-approval is generally valid for three to six months, depending on the lender. It allows you to make offers with confidence, knowing that finance is likely to be approved. It does not, however, guarantee final approval. Once you find a property and sign a contract, the lender will complete a full assessment, including a valuation of the property. If the valuation comes in lower than the purchase price, the lender may reduce the approved loan amount or require you to increase your deposit.

For buyers in South Perth, where competition for well-located properties near the Swan River and local schools can be strong, having pre-approval in place before attending inspections can reduce the risk of losing a property to another buyer while waiting for finance confirmation.

Can You Use the First Home Super Saver Scheme with a Variable Rate Loan

The First Home Super Saver Scheme allows you to save for a deposit inside your superannuation fund and withdraw up to $50,000 of voluntary contributions, plus associated earnings.

The scheme is administered by the Australian Taxation Office, not your lender. You make voluntary contributions to your super fund, either before-tax through salary sacrifice or after-tax as personal contributions. These contributions are taxed at the concessional superannuation rate, which is generally lower than your marginal income tax rate. When you are ready to purchase, you apply to the ATO to release the funds.

The released amount can be used as part of your deposit for a home loan application, including a variable rate loan. The funds can be combined with other savings, gifted deposits, and government schemes such as the 5% Deposit Scheme. The First Home Super Saver Scheme does not restrict the type of loan you can take out or the property you can purchase, provided you meet the eligibility criteria for occupying the property as your principal place of residence.

This approach works well for first home buyers who have stable employment and can commit to making regular super contributions over a period of time before purchasing. The tax savings and compounding earnings can accelerate the deposit-saving process.

Choosing the Right Variable Rate Loan Product

Variable rate loans are offered by major banks, regional lenders, and non-bank lenders, and the features and rates vary significantly.

When comparing products, consider the interest rate and discount, the availability and functionality of an offset account, redraw terms, and any ongoing fees such as monthly account-keeping fees or annual package fees. Some lenders waive fees for first home buyers or offer discounted rates for a limited period. Others provide cashback offers, which are lump-sum payments made after settlement, though these are often tied to specific conditions such as maintaining the loan for a minimum period.

Non-major lenders often provide more competitive rates and are more flexible with assessment policies, particularly for buyers with non-standard employment arrangements or those using gifted deposits. Major banks may offer more comprehensive packages that include offset accounts, transaction accounts, and credit cards, but the headline rate may be higher.

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