Honeymoon or introductory rates entice borrowers with a low advertised home loan interest rate, usually up to 2% below the mainstream home loan rate. The rate is usually fixed, capped or variable for the first six to 12 months of the home loan, with some lenders even offering up to five-year honeymoon rates.
According to Xinc Mortgage Brokers, there are some excellent honeymoon rates on offer in the home loan market; however, investors need to understand how they work in order to choose the right type of loan for their situation.
The most important thing to understand is that lenders can offer cheap interest rates, such as honeymoon rates, by limiting the cost to manage as a customer. This could mean limiting the options and features on a home loan and potentially offering little flexibility if your situation changes.
You might also be required to keep the loan for a specific period of time, with strict rules about how you make payments and when you can pay out the loan. This is not as much of a concern for buy and hold investors, however it is an element to be mindful of.
Always remember that the interest rate is only one part of the overall pricing you should be looking at when you take out a home loan. For a slightly higher interest rate, you can get a range of additional features, such as redraw facilities and internet banking. The upfront, exit and ongoing fees of a home loan can also add up to a significant amount, so be sure you know what you’re up for.
ALWAYS
- Ask for the comparison rate so you know what you’re really paying in the long term
- Ask about deferred establishment and exit fees so you know what you’re up for if you change your mind partway through the 'honeymoon' or 'post-honeymoon' agreed terms
- Talk to a mortgage broker to help you assess all the pros and cons
Source: Xinc Mortgage Brokers (www.xinc.net.au)