Banks and Honeymoons

Banks and Honeymoons

This week, all the big banks came out firing, trying to win back borrowers. With many of the lenders reputations questionable at the moment due to the ongoing Royal Commission's finding, lenders are competing in the only way that they know how - interest rates. This results in an opportune event for you, the borrower - "honeymoon" rates.

"Honeymoon loan products?", I hear you say. No, it's not the bank taking you on a romantic getaway with beaches and daiquiris, bur rather a different type of product offered by a number of lenders. It may also be referred to as an "intro" loan.

What is a honeymoon or intro loan?

A honeymoon or intro loan is a lender product in which the interest rate is often significantly lower than other products currently offered by the lender. This low interest rate is offered for a certain period of time, with most lenders generally offering the special rate for at least a year. After this time has finished, the interest rate will revert to a higher original rate.


Low interest rate means lower repayments.

For many first homeowners, this can be a huge relief to the sudden need to pay a mortgage that is often significantly higher than rent repayments. A honeymoon rate is the bank's way of slowly getting the borrower to adjust to this life change.

Some borrowers also take advantage of this time to make additional payments on their mortgage while the interest rate and repayments are low, resulting in far less interest paid in the long term over the entire loan.


Every honeymoon must end at some point.

When the interest rate reverts to the normal rate, this can come as quite a shock to the borrower, especially if the normal interest rate is significantly higher. Sometimes, the savings that come from the special rate can be pointless if this new rate isn’t competitive against other lender rates.

Be sure you are prepared for what the rate is going to revert to if you sign up to a honeymoon loan. Make sure when going into that loan that the final rate after the honeymoon is over is still competitive against other lenders. 

And as always to save you the homework, go to your friendly broker! They can help point you in the right direction.

Posted in Money Musings on Thursday 19th July, 2018