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Are you buying your first home?

Georgia Brown avatar
Georgia Brown
- 4 min read
Are you buying your first home?

Buying your first home can be one of life’s biggest and most exciting milestones. But it’s important to have an understanding of the basics of home loans before you decide on one that’s right for you.

When you get started on your home loan search, you’ll discover there are thousands of Australian home loans to choose from with a wide range of differences. But one of your first decisions will be to choose between a variable rate and fixed rate home loan.

Some first home buyers may also consider special home loan offers and schemes that can sometimes offer a helpful entry point into the market. To figure out whether these may suit your needs, it’s worth exploring all of your options.

To help you get started, here are some of the more commonly considered home loan types and offers typically available to first home buyers:

Fixed rate home loan

Choosing a mortgage with a fixed rate means the amount you are charged in interest is locked in for a set period of time – generally between one and five years. This can provide a first home buyer with peace of mind in knowing what their home loan repayments will be on a regular basis.

Once the fixed period of your loan comes to an end, your interest rate will revert to a standard variable rate unless you choose to refix. It’s important to prepare your finances for this change in case your repayments increase significantly.

Variable rate home loan

Variable mortgages have interest rates that will fluctuate throughout the life of the loan, typically influenced by the official cash rate set by the Reserve Bank of Australia. Because of this, your repayment amounts will also fluctuate. So, it’s important to have flexibility in your budget.

Variable rate home loans have the potential to be advantageous when interest rates are falling, but can become increasingly costly when rates are on the rise.

Honeymoon rate home loan

Lenders targeting first home buyers will sometimes offer a cut-price rate over the course of a “honeymoon” period, which is usually six to 12 months. This can be particularly helpful to many first home buyers who may be juggling the costs associated with buying a home and the expense of setting up their first home all at once.

However, when the initial period is over, the loan rate reverts to a standard variable rate, which is generally higher than the honeymoon rate.

Given the broad range of home loans available to a first home buyer, it is important to weigh up the benefits and disadvantages of these kinds of offers, including the following:

Pros

  • Low upfront interest rate
  • Can assist with budgeting early on

Cons

  • Revert rate can often be much higher
  • May cause budgeting challenges when repayments increase

Government schemes

There are a number of government grants and schemes that many first home buyers may be eligible for, which can often make entering the property market less challenging.

Some of the government schemes currently offered include: 

  • The Help to Buy scheme
  • The First Home Loan Deposit Scheme
  • The New Home Guarantee
  • The First Home Super Saver Scheme
  • The Family Home Guarantee

In addition to these schemes, some states and territories offer bonuses and stamp duty concessions. Check if you may be eligible for a stamp duty concession with RateCity’s stamp duty calculator.

Of course, these offerings each come with their own set of eligibility criteria, so be sure to check whether they may apply to you.

If you’re looking for personalised advice and guidance on your home buying journey, you might like to consider reaching out to a mortgage broker.

Compare home loans in Australia

Product database updated 19 May, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.