Top tips to use variable rate loans and extra repayments

Why variable rate loans suit first home buyers making extra repayments

Variable rate loans let you make unlimited extra repayments without penalty, which means every spare dollar you put towards your loan reduces the interest you pay and shortens your loan term. Under the Australian Government 5% Deposit Scheme, buyers can access variable rate, fixed rate or split loan structures depending on their chosen participating lender, but for buyers who expect to have irregular income or surplus cash flow, a variable rate structure offers flexibility that fixed loans do not.

Consider a buyer purchasing a villa in Marmion, close to Marmion Beach and within walking distance of the Marmion Angling and Aquatic Club. They secure a loan at the current variable rate with an offset account linked. They plan to make extra repayments whenever they receive income from casual work or freelance contracts. A fixed rate loan would have capped their additional repayments or charged them a fee for exceeding the annual limit, but their variable loan allows them to deposit any amount at any time. Over the first two years, they make an extra $8,000 in repayments. Those funds immediately reduce the principal balance and lower the interest charged on the remaining loan.

How offset accounts work with variable rate loans

An offset account is a transaction account linked to your home loan that reduces the interest charged on your loan balance by the amount sitting in the offset. If your loan balance is $500,000 and you have $20,000 in your offset account, you only pay interest on $480,000. The money in the offset remains accessible, which makes it useful for buyers who want to reduce interest costs without locking funds into the loan itself.

Offset accounts are typically available only on variable rate loans or the variable portion of a split loan. Most lenders charge a slightly higher interest rate or an annual package fee for loans with offset accounts, so you need to weigh the cost of the feature against the interest you save. For buyers who can maintain a buffer of several thousand dollars in their offset, the feature often pays for itself within the first year.

Redraw facilities and how they differ from offset accounts

A redraw facility lets you access extra repayments you have made on your loan, but the funds are not held in a separate account. Instead, they reduce your loan balance immediately, and you need to request a redraw if you want to access them later. Some lenders charge a fee for each redraw or limit how often you can access the funds, and in some cases lenders have restricted access to redraw balances during periods of financial stress.

Offset accounts give you unrestricted access to your funds at any time, which makes them more flexible than redraw. If you are saving for a specific goal or want to keep an emergency buffer, an offset account is usually the option to pick. If you are focused purely on paying down your loan and do not expect to need access to the extra funds, a redraw facility may come with a lower interest rate or no package fee.

What first home buyers in Marmion need to know about deposit size and loan features

Under the 5% Deposit Scheme, eligible first home buyers can purchase with a 5% deposit without paying lenders mortgage insurance, because Housing Australia guarantees the difference between the deposit and 20% of the property value. For Western Australia, the property price cap is $850,000 for Perth and applicable metropolitan postcodes, and $600,000 for the rest of Western Australia. Marmion falls within the Perth metropolitan area, so the $850,000 cap applies.

Loans with offset accounts or redraw facilities are available under the scheme, but the specific features depend on which lender you apply through. Applications are made through a participating lender panel and cannot be made directly to Housing Australia. Some lenders on the panel offer offset accounts as standard, while others reserve them for borrowers who meet specific income or deposit criteria. If offset functionality is important to you, confirm the available loan features with your mortgage broker in Marmion before submitting your application.

Fixed versus variable when you are planning to make extra repayments

Fixed rate loans typically cap extra repayments at around $10,000 to $30,000 per year, depending on the lender. If you exceed that limit, you pay a fee or the excess is placed into a holding account without reducing your loan balance. Variable rate loans do not have these restrictions, so if you expect to make more than the fixed loan cap in extra repayments, a variable loan will save you more in interest.

A split loan structure can work if you want rate certainty on part of your loan but still want flexibility on the rest. For example, you might fix 60% of your loan and leave 40% variable. You can make unlimited extra repayments on the variable portion, and the fixed portion gives you predictable repayments for a set period. Split loans add complexity and may come with two sets of fees, so weigh the benefit of partial rate certainty against the cost and administration.

Using Western Australian stamp duty savings to build your offset balance

From 7 May 2026, eligible first home buyers in Western Australia pay no duty on homes valued up to $600,000, and a concessional rate applies on homes valued between $600,001 and $800,000. The maximum dutiable value to access the concession is $800,000. For a buyer purchasing at the current median in Marmion, the stamp duty saving can be substantial. If you were expecting to pay $20,000 in stamp duty and instead pay zero or a reduced amount, that saving can go straight into your offset account or be used to make an immediate lump sum repayment.

Building an offset balance early reduces your interest costs from day one. If you deposit $15,000 into your offset account at settlement, that amount offsets your loan balance immediately and continues to save you interest every day the money sits there. Over the life of a loan, that upfront deposit can save you tens of thousands of dollars in interest, depending on your loan size and the rate you are paying.

Loan structures to discuss with your broker

When you meet with a mortgage broker, bring details of your expected cash flow, any lump sums you anticipate receiving, and how often you plan to make extra repayments. Your broker can compare loan products based on whether they include offset accounts, redraw facilities, annual package fees, and any restrictions on additional repayments. Some lenders offer basic variable loans with no ongoing fees and limited features, while others offer packaged loans with offset accounts, rate discounts, and fee waivers on other products.

If you expect to refinance within a few years, a no-frills variable loan with low fees may suit you. If you plan to stay with the same lender for the life of the loan and want access to offset and redraw, a packaged variable loan is worth considering. Your broker can run scenarios showing how much interest you would save under each structure based on your deposit size, expected repayments, and offset balance.

When to reconsider a variable rate loan

Variable rate loans are best suited to buyers who can afford repayment increases if rates rise. If your budget is tight and you cannot absorb an extra $200 to $400 per month in repayments, a fixed rate loan or a split structure may give you more certainty. Variable rates can move up or down depending on economic conditions and lender funding costs, so your repayments will change over time.

If you are relying on a specific fortnightly repayment amount to balance your other expenses, a fixed rate loan locks that repayment in for the fixed period, which makes budgeting easier. The downside is that you lose flexibility on extra repayments and pay a penalty if you need to break the loan early. Weigh your tolerance for repayment variability against your desire to make unlimited extra repayments before deciding which structure suits you.

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