Honeymoons don’t always just apply to marriage, there are honeymoon rate home loans too. These types of loans are offered to first home buyers and are also called introductory rate or a discount home loans. And just like your honeymoon the shine generally comes off after the first twelve months of the loan. At the end of the time you are then rolled over to a standard variable rate, which may be quite a surprise to your bank account.
If you are paying a lower rate, this may help initially if you are setting up home. This honeymoon period is a good time for first home buyers to start budgeting so they are ready when they have to pay a higher repayments.
The introductory or discounted period will only be for a short time, so I would advise to not overspend or extend yourself. Understand what your repayments will, or could possibly be when the period is over, so there are no surprises.
Many lenders that offer this type of loan, don’t allow for extra repayments to be made. But if you can, then pay the extra repayments in the introductory or discounted period. By paying the higher rate, there is no shock to the budget in the future and you have saved yourself money in the long term.
Although you may be very satisfied at finding such a good home loan rate, you may not feel like that in twelve months time. A honeymoon rate home loan, (introductory or discounted home loan) is like bait to first home buyers and once they are in the banks like to keep their customers in their system. The bank makes their money back when you end up on the standard variable rate at the end of the introductory or discounted period. The standard variable rate can end up being significantly more expensive in the long term and generally one of the most expensive rates on the market. They rely on many first home buyers being lazy with their finances to worry about seeking a better deal, the bad news is that many people do treat their loans as set and forget.
The best way to know whether a honeymoon rate home loan (introductory or discounted home loan) will suit you is to look at comparisons of loans over the life of the loan. A comparison rate incorporates the fees and charges of a home loan. A honeymoon rate may look very tempting on paper but your home loan needs to be considered a long-term partnership with the lender. Don’t get caught up in the advertising hype of discounted or introductory home loans. Each lender tries to make the grab for first home buyers with lower rates. You need to make sure that you talk to a mortgage broker, they have the knowledge to help you compare different loans and understand what loan will best suit you.
We have known Alex for over 10 years now and he has always steered us in the right direction, he now handles 3 property mortgages and 1 car loan for us having completed the 3rd property only last week. His advice is always spot on and communicates in a language that all can understand. Luke and I highly recommend Mango Money to help with wealth creation, money management and overall to get the best possible rates etc. Thank you Alex will now start saving for property number 4 - lol! 🙂
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