Variable Rate Loans and Extra Repayments for Paramedics

A variable rate loan suits a paramedic whose pay moves with rosters, overtime and allowances, because extra repayments can go in when the money is there. This article is for qualified paramedics preparing to buy a first home and deciding how to structure the loan.

Why Do Variable Rate Loans Suit Paramedic Pay?

A variable interest rate loan generally lets you make repayments above the minimum, which suits income that changes from fortnight to fortnight. Your base wage covers the required repayment, and penalty rates, overtime or a night-shift run can go on top of it.

A fixed interest rate loan gives certainty, but lenders often limit how much extra you can pay during the fixed term. Check the limit in the loan terms before you commit. The trade-off with a variable loan is that your repayment can rise if the interest rate rises, so your budget needs room for that. Our borrowing capacity calculator is a good place to test your numbers.

How Much Difference Do Extra Repayments Make?

Extra repayments cut the loan balance, and a lower balance means less interest is charged from then on. The effect is strongest early in the loan, when most of each repayment goes to interest.

As an illustrative example at 6.75% p.a., consider a paramedic with a $500,000 loan over 30 years. The minimum repayment is about $3,243 a month. In the first month, about $2,812 of that is interest and only about $430 reduces the loan. If the paramedic adds $200 a month from shift allowances, about $630 reduces the loan in that first month, roughly 46% more. Each month the balance is lower, so a little less interest is charged. The rate here is illustrative only and your actual rate will depend on your deposit size and lender.

Offset Account or Redraw: Which Suits Your Roster?

An offset account keeps your savings separate while reducing the interest charged on your loan, and redraw lets you pull back extra repayments you have already made. Both help your money work harder, and they suit different habits.

With an offset account, your pay lands in the account and the balance is deducted from the loan when interest is calculated. You can still reach your cash easily. Some lenders attach a fee or a higher rate to loans with an offset, so compare the total cost. Redraw is usually built into variable loans, but the lender sets the rules, and some limit or charge for redraws. Ask what applies before you rely on it as your emergency buffer.

For a paramedic with unpredictable overtime, an offset account is a useful holding place for irregular income while the balance still cuts your interest.

Can You Use the 5% Deposit Scheme With a Variable Loan?

The 5% Deposit Scheme lets eligible first home buyers purchase with a 5% deposit, and the loan comes from a participating lender. Housing Australia's published material does not say which loan features are available under the scheme, so confirm whether a variable rate, offset account or redraw is offered before you apply.

The scheme has price caps that depend on the suburb and postcode, and you must move into the home within six months of settlement. Our page on the 5% Deposit Scheme for paramedics covers how it works for your role. The trade-off with a smaller deposit is a larger loan, so more of your repayment goes to interest early on.

Setting Up Extra Repayments Before You Settle

Decide how you will make extra repayments before your home loan application goes in, so the loan you choose fits the plan. Banks and other authorised deposit-taking institutions must assess your ability to repay at a rate at least 3 percentage points above the loan rate. Treat extras as a bonus rather than part of your budget.

Consider a paramedic who works regular night shifts and earns about $400 a fortnight in allowances on top of base pay. She sets her minimum repayment to fit base pay alone. She then arranges for $200 a month to go to the loan, and tops it up when overtime lands. The $200 is a figure she can keep up even in a quiet month. If an expense hits, she checks her redraw or offset balance rather than going without. Her outcome is a steady drop in the balance, and no pressure on her budget when rosters change.

Getting loan pre-approval first shows you what a lender will lend before you bid. If you want to understand the whole process, our guide to buying your first home walks through it.

Can the First Home Super Saver Scheme Add to Your Deposit?

The First Home Super Saver scheme lets eligible first home buyers release voluntary super contributions towards a first home. Up to $15,000 of voluntary contributions in a financial year, and $50,000 in total, count towards release.

The trade-off is that the money sits in super until released, and the released amount can be taxed. If you do not sign a contract or recontribute within the time limits, extra tax can apply. The rules on timing are strict, and a determination must be requested before ownership of a property transfers. Speak to your accountant before you start salary sacrificing, as your tax outcome depends on your own circumstances.

If you already hold a fixed loan, our fixed rate expiry calculator shows what happens when the fixed term ends.

Call one of our team or book an appointment at a time that works around your roster, and we will help you choose a loan that lets you make extra repayments.

Frequently Asked Questions