Variable Rates and Offset Accounts: What First Home Buyers Need to Know

Getting Started with Your First Home Loan

Buying your first home is a massive milestone, especially for FIFO workers in South Australia who juggle unique work schedules and income patterns. When you're ready to apply for a home loan, understanding the different home loan options available to you is crucial for making informed decisions that suit your lifestyle and financial goals.

Two key features that first home buyers often hear about but don't fully understand are variable interest rates and offset accounts. Let's break down how these work and why they might be worth considering for your first home loan application.

What is a Variable Interest Rate?

A variable interest rate is an interest rate that can move up or down during the life of your loan. Unlike a fixed interest rate that stays the same for a set period, a variable rate changes in response to market conditions and decisions made by your lender.

For first home buyers, variable interest rates offer several advantages:

• Flexibility to make extra repayments: You can pay more than your minimum repayment without penalty, helping you pay off your loan faster
• Access to features like offset accounts and redraw facilities: These tools can help you save on interest
• Potential to benefit from rate decreases: When interest rates drop, your repayments may decrease too
• No break costs: Unlike fixed loans, you won't face penalties if you need to refinance or sell

However, the main consideration with a variable rate is that your repayments can increase if the interest rate rises. This is why having a first home buyer budget that accounts for potential rate changes is important.

Understanding Offset Accounts

An offset account is a transaction account linked to your home loan. The balance in this account is "offset" against your loan balance, which means you only pay interest on the difference.

Here's how it works: If you have a $400,000 home loan and $20,000 in your offset account, you'll only pay interest on $380,000. Your actual loan balance remains $400,000, but the interest calculation uses the reduced amount.

Why Offset Accounts Work Well for FIFO Workers

For South Australian FIFO workers, offset accounts can be particularly beneficial because of your unique income patterns. When you're on site, you're earning substantial income but have limited opportunities to spend. This means you can build up significant savings during your working periods.

Instead of keeping these savings in a regular bank account earning minimal interest, placing them in an offset account can save you thousands in interest charges over the life of your loan. You still have complete access to your money whenever you need it, but it's working harder for you by reducing your interest payments.

Let's say you maintain an average balance of $15,000 in your offset account throughout the year. With a home loan interest rate of 6% per annum, you could save around $900 annually in interest charges. Over 30 years, that's substantial savings.

Offset Account vs Redraw Facility

Many first home buyers get confused between offset accounts and redraw facilities. While both can help you save on interest, they work differently:

Offset Account:

• Separate transaction account linked to your loan
• Instant access to your funds
• No restrictions on withdrawals
• Interest savings based on daily balance

Redraw Facility:

• Extra payments go directly into your loan
• May have access restrictions or fees
• Reduces your actual loan balance
• Can affect first home buyer eligibility for certain grants if you redraw funds

For FIFO workers who need flexibility with their cash flow between rosters, an offset account typically provides more convenient access to funds.

Home Loan Options with Low Deposit and Offset Features

As a first home buyer, you might be exploring low deposit options such as the 5% deposit or 10% deposit schemes. The good news is that many of these home loan options still come with offset account features, even if you're using the First Home Loan Deposit Scheme or Regional First Home Buyer Guarantee.

These government initiatives can help you avoid Lenders Mortgage Insurance (LMI) when borrowing with a smaller deposit, making homeownership more accessible. South Australian FIFO workers may also qualify for first home buyer stamp duty concessions and first home owner grants (FHOG), which can further reduce your upfront costs.

Maximising Your Offset Account Benefits

To get the most value from your offset account:

1. Direct your salary into it: Have your FIFO income paid directly into your offset account
2. Pay bills from the offset account: Keep money there as long as possible before payments are due
3. Use it as your primary transaction account: The higher your daily balance, the more interest you save
4. Consider the first home super saver scheme: This can help boost your initial deposit, giving you more funds to place in offset
5. Avoid unnecessary fees: Check if your offset account has monthly fees that might outweigh the interest savings

Making Your First Home Loan Application

When you're ready to proceed with your first home loan application, it's important to get pre-approval before you start seriously house hunting. Pre-approval gives you confidence about your borrowing capacity and shows sellers you're a serious buyer.

Your first home buyer checklist should include:

• Proof of income (including FIFO rosters and pay slips)
• Savings history showing genuine savings or a gift deposit
• Identification documents
• Details of your assets and liabilities
• Information about the property you're purchasing

As a South Australia FIFO worker, you'll want to work with a broker who understands how lenders assess non-standard work arrangements and can present your application in the most favourable light.

Choosing Between Variable and Fixed Rates

While this article focuses on variable interest rates, some first home buyers opt for a split loan - part variable with an offset account, and part fixed for repayment certainty. This approach can provide both flexibility and stability.

Consider a variable rate with an offset account if you:

• Want to pay off your loan faster with extra repayments
• Have variable income patterns that create fluctuating savings
• Value flexibility over rate certainty
• Want to take advantage of interest rate discounts when they occur

The key is matching your loan structure to your financial situation and goals. There's no one-size-fits-all solution for first home buyers.

Buying your first home as a FIFO worker doesn't have to be overwhelming when you understand your options. Variable interest rates combined with offset accounts can provide the flexibility and potential savings that align well with your unique income and lifestyle.

Ready to explore your home loan options? Our team specialises in mortgages for FIFO workers and understands the specific challenges you face. Call one of our team or book an appointment at a time that works for you, even between rosters. We'll help you find a loan structure that maximises your savings and sets you up for long-term financial success.