Honeymoon Rate Home Loans
A honeymoon home loan is an introductory loan that provides a discount off the standard variable rate at the initial stage of a loan. The discount can be as much as 1% off the standard interest rate annually.
The purpose of these honeymoon home loans is to entice and attract borrowers with a low advertised home loan interest rate that could be as much as a whole percent point below the average home loan rate. It looks perfect to prospective borrowers. This particular rate can be fixed, capped and variable for the initial months of the home loan. Right after that particular period, the lender reverts to the standard procedure for the conventional variable home loan.
How long does the Honeymoon Last?
The discounted interest rate in a honeymoon loan usually applies for the first six to twenty four months of the loan period. As soon as the short term ends and the lender reverts to the standard variable rate, the borrower should be prepared for an increment in the repayment. An interesting point to notice here is that inside of the honeymoon period, the interest rate is capped. so it cannot higher than the honeymoon rate, however it could go lower if standard variable rate of your lender falls.
Sometimes if the borrower chooses to refinance at the end of the honeymoon period, various penalties and fines can be applied on the borrower. However, this policy does vary from one lender to the next.
Honeymoon home loans have initially cheaper, inexpensive and affordable rates because they generally have far fewer options and features. The honeymoon period also often has strict regulations to follow regarding how you are to render your repayments and when exactly you can complete your payments. In case flexibility in terms of the given period could a significant problem for you, make sure that you ask the lender for details, e.g. early repayment penalty fees, so that you know what to expect.
Pros of a honeymoon home loan:
The most attractive feature of a honeymoon home loan is that it typically offers the lowest introductory rates provided in the market. This is done to attract more customers.
Also, by making early repayments during the initial period, the borrower can decrease the principal quickly.
Cons of a honeymoon home loan:
The main disadvantage of a honeymoon home loan is that it offers very little flexibility to the borrower in terms of completing their repayments. In the case of repayment problems, some lenders offer Offset Accounts to accompany the loans.
Also, most banks charge fees if you choose to end these mortgages within the first four or five years after settlement. Fuerthmore, the comparison rate of these loans tends to be higher than standard variable home loans.
Should you get a honeymoon home loan?
One thing you need to remember is that cheap interest rates do not necessarily help one to get a better residence. It could appear attractive in the beginning but in the long run, it is hard to keep up with. Make sure that you discuss your mortgage options with a mortgage broker at Bad Credit Home Loans and you will be able to understand the differences in the salient features of the plan.
Just remember that the overall pricing is the main figure you should be looking at while considering a honeymoon home loan. If you do not need the features and facilities offered, make sure you refuse them before they are turned into additional burdens for you.
Get a free honeymoon home loan quote.
If you would like to discuss obtaining a honeymoon rate home loan or to discuss your other options please call us on 1300 760 718 or fill out the enquiry form in the left hand menu of this page.