Honeymoon and introductory rates
Honeymoon and introductory rates are self-descriptive, in that they are discounted introductory rates that only last for a certain period of time. Today I am going to explain how they work in detail, and why I believe you should be careful about these intro rates when selecting a home loan.
There are many different home loans available in the market, and the use of intro rates are enticing to borrowers simply because of the low interest rates. Sometimes these rates can be a few percentage points below the standard home loan rate a lender is offering, making the home loan look very attractive to prospective customers.
However these intro rates that entice a borrower in, only last for a set period of time, generally between six to twelve months. After this period the interest rate then reverts to a standard home loan rate, which will always be higher, and in many cases won't be anywhere near the more competitive home loan rates that you could get in the market.
Intro rates can also come at a cost, for example restrictions or exclusions to your loan. Some lenders will limit the features, flexibility and offset account options with the home loan, which can result in limited flexibility over the term of the loan.
The most useful rate to refer to when choosing a home loan is the comparison rate, often referred to as the "true" interest rate of a loan. A comparison rate takes into consideration the fees and charges of that loan, based on a loan amount of $150,000 over 25 years. You will find that the comparison rate of an intro rate home loan is typically substantially higher than that of the advertised intro rate. This in itself is a warning sign when considering home loans with enticing, short term intro rates.
My advice when looking for a home loan is to do your research. There are many lenders outside of the major banks that are offering very low interest rates, without honeymoon or introductory periods. If you do your research, you will find a suitable home loan that has a low interest rate, without sacrificing all of the features and benefits that you are entitled to.
Intro rates are essentially an advertising mechanism, and are used to entice customers looking for a low rate. Luckily, customers are wising up, doing their research, and finding a lender that offers low rates without any catches.
At loans.com.au, we don't offer intro rates with any of our products. Being an online lender we are able to offer low rates because of our streamlined online structure. This means that you get one of the lowest interest rates available with home loans that are fully featured. So make sure you choose a lender like us when looking for a new home loan, as you will benefit substantially in both the long and short term.
By Marie Mortimer. You can follow Marie on Google+
Image credit: mcgoo84